5 Reasons Why Timing the Market is a Bad Idea

 

It’s easy to get carried away when planning your investments. To keep you on track for your long-term financial goals, we’ve highlighted five reasons why you shouldn’t time the market.

If you’re like most retail investors, you probably don’t have the time to sit in front of your computer tracking every market movement and every news article or tweet. There are other things to do with your time, like your job. That’s why investment funds exist. The managers who run these funds take away the hassle of having to constantly monitor all the data. It’s their actual job, and they have the high-tech equipment and manpower to do it.

Even so, some investors are still tempted to pick stocks they think will perform. Scroll through any investment forum and you’ll see little gems like these:

“Sure gain one...”

“I heard X Company is going to expand their market with a big contract, buy now!”


It’s understandable to want to make the most of every opportunity, no matter how the information presents itself. Watch out! You’ll be tempted to “time the market”, which is basically predicting the ups and downs. If you aren’t careful, you’ll get sucked into a never-ending vortex of mind-numbing decision making, trying to outsmart the market. Before you know it, you’ll be stuck in front of your PC for days at a time, unwashed and forgotten by the world.

If you still aren’t convinced by the possibility of never leaving your room, here are five solid reasons why timing the market is a bad idea.


1. It’s impossible to get it right every time

“Buy low, sell high”.

Whoever came up with this concept is either a witch or they aren’t telling the whole story. There’s more to it than just that – it’s not as simple as it sounds. Finding the right spots to buy low and then sell high requires the power to see into the future, which we don’t have. We don’t even know what’s going to happen in an hour, let alone three months down the line. Trying to time the market is like throwing darts blindfolded and expecting to hit the bullseye every time.

No analyst forecast or fancy candlestick chart is ever going to be 100% accurate. Sure, they can serve as a rough guide to help you make informed decisions, but as we’ve learned from the past few years, anything can happen.

There are so many variables that go into influencing market movements, from geopolitical events to macro and micro economic factors. A company’s performance is susceptible to all these factors, and then some. The discovery of financial misconduct or violations of laws and regulations could send a stock crashing almost overnight and even lead to bankruptcy. Employees showed up for work at Lehman Brothers on 15 September 2008 only to find that they didn’t have jobs anymore. This was a company that was once deemed “too big to fail”.


2. You could miss out on opportunities


If you sell too soon, you miss out. If you sell too late, you also miss out. It feels like you’re playing that mole-smashing game at the arcade. If you don’t have four arms, you’re bound to miss a few. When you time the market, you will miss some juicy opportunities because you’re distracted by that other mole.

Whac-a-Mole in real life was when the Federal Reserve announced unlimited quantitative easing in March 2020, driving the S&P500 up more than 50% within a nine-month period. Investors who predicted a sell-off missed a big opportunity to get returns on their investment capital. Game Over.


3. You will get emotional and panic


You may be one of those people who never cry watching sad movies, but no investor is spared from the emotional impact of the markets. After all, it is your own money. You are invested both financially and emotionally. It hurts because it’s real.

When stocks plunge, your first instinct is to hit the sell button. That’s panic selling. The knee-jerk reaction to save yourself is a biological response you must keep in check. It’s like when Rose let poor Jack drown. If they had just taken a few seconds to assess the situation, they would have figured out how they could both fit on that piece of wood.

A market’s best days often come right after a drop. Don’t panic. Remember how markets bounced back after 2020? The news was all doom and gloom that year, then things started turning around. Those who had stayed put and kept investing or had pivoted their investments would have made decent returns compared to those who panicked and let Jack drown.  


4. It will cost you


You might think you’re winning after churning out a marathon series of short-term trades based on your “winning formula” from YouTube but think again. Each transaction carries a fee, and multiple transactions accumulate and eat into your gains.

Just like doing too much, it will also cost you to not do anything at all. In waiting for the “perfect” low entry point to enter the market, you end up not buying at all.  

In fact, according to a study by Schwab Center for Financial Research*, you’re better off closing your eyes and just putting in a fixed amount every month, no matter how the market looks.  


5. You will lose sight of your long-term goals


Sometimes you just can’t see the wood for the trees. You’re too busy keeping an eye on the short-term movements, you forget why you started investing in the first place. It’s too easy to get lost in a sea of data and news.

What you should do instead


We aren’t telling you all this to scare you away from investing – in fact, we want you to invest wisely. We want to save you the effort and the tears from trying (and failing) to time the market.

What you should do is much easier. Forget timing. Just stay invested through a well-diversified portfolio based on your risk appetite and long-term goals. You can check out some of our other articles on why you should diversify, and how you can do it. Your Relationship Manager will be happy to help you build a portfolio.

When building up your investments, consider dollar-cost averaging, which is just a fancier way of saying you’re putting in smaller amounts frequently and consistently. It won’t guarantee a profit (there are no guarantees in investing), but you won’t be tempted to time the market, either. It’s almost effortless. Keep your eyes on your goal and your retired future self will thank you for it. That we can predict.



*Charles Schwab Center for Financial Research; Does Market Timing Work?; 15 July 2021.



PREVIOUS ARTICLE
Easing into 2023
NEXT ARTICLE
The phoenix rises
Join RHB Premier Today
Close

Switch to RHB Premier today

Please fill in the fields below so we can get in touch with you.