Skip to content

    Market Timing – What Should You Do?

    November 03, 2017

    “What goes up must come down.” –Isaac Newton

    The adage applies to more than just gravity. Most people assume a downturn in the market is inevitable. But is trying to time the market a good idea? Resoundingly, experts agree, No.

    There is a vast difference between time in the market and timing the market. Calculating your bets on market timing comes with its own set of dangers.

    Here’s a look at why Market Timing doesn’t always pay.

    • Investors can be horrible market timers:  That’s according to Morningstar senior analyst Alina Lamy1, whose firm recently released data that confirms investors continue to make the same mistakes—chasing performance or shifting strategy based on looming fears.
    • Emotional choices can add up to big losses:  Getting out of the market before a downturn may spare losses in the short term, but it could mean missing out on significant gains. Some of the best days and months of the year in the market can happen after big downturns. Let’s not forget what happened after the financial crisis of 2008—investors who bailed out of stocks ended up missing out on returns from one of the longest running US bull markets. 2
    • Short-term market swings are volatile:  With media coverage comes sensationalism and impulsive investment decisions. Even professional market timers who pay heed to such swings are rarely, if at all, able to outperform the market.3
    • Your timing is everything:  To get ahead of a bear market or mitigate a downturn, you need to know:
    1. the best moment to sell, as well as
    2. the best moment to buy back into the market

    Even if you are able to get one of those timings right, the risk is great that you won’t get both of those timings right.4

    So, how can you keep calm in the face of a looming downturn?

    Stay invested…

    • The probability for loss is higher on a given day, but the likelihood of realizing loss decreases with longer-term investments.
    • During the 90-year period from 1926-2016, one-year returns had periods of gain 74% of the time, versus a 26% loss period. Five-year annualized returned had gains 86% of the time in the same period, versus losses 14% of the time.5
    • A recent study by the Center for Retirement Research looked at the effect of market timing on target-date funds. The findings: funds that were weighted by the age of the fund performed significantly better. Those that deviated from their glide path did not improve and often underperformed.6

    …but don’t invest in hype

    • Keep in touch with the performance of your accounts, but avoid reacting to media coverage with radical changes in your investment plans.
    • Overconfidence does not pay off. A Journal of Finance study7concludes that excessive trading is hazardous to your wealth. In the 5-year period from 1991-1996, those that traded most yielded 11.4% gains—and underperformed the market returns of 16.4%.

    Keep your eye on your carrot

    Conclusion:
    The bottom line is that if you are moving in and out of the market based on headlines, economic conditions, or technical data, you may be successful some of the time. But the cost of missing the best 10 days, or even the best month in the market can add up to huge percentage points in missed financial gains.3

    When it comes to sound financial health, it’s well worth your while to keep the long-tail view. Talk with a credentialed advisor today to help ensure that you’re on track to meet your short and long-term investment and savings goals.

    1TIME Business, “Why Market Timing Never Works” (March 2017)
    2GuideChoice, “Why Timing Markets Doesn’t Work – A Better Alternative” (September 2017)
    3Index Funds Advisors, Inc. (2014)
    4Halpern Financial, “Why Market Timing Doesn’t Work” (September 2017)
    5Morningstar, “Fundamentals for Investors” (2017)
    6Center for Retirement Research at Boston College (January 2017)
    7The Journal of Finance, Vol. LV, NO. 2 (April 2000)
    © 1993-2024, Allworth Financial. All rights reserved.

      Privacy Policy   |    Disclosures   |    Cookie Preferences   |    Do Not Sell or Share My Personal Information

       

      Advisory services offered through Allworth Financial, a Registered Investment Advisor | Disclosures | Privacy Policy

      Securities offered through AW Securities, a Registered Broker/Dealer, member FINRA/SIPC. Check the background of this firm on FINRA's BrokerCheck.

      HMRN Insurance Agency, LLC license #0D34087

      1Barron’s 2024 Top 100 RIA Firms. Barron's© magazine is a trademark of Dow Jones L.P. The ranking of independent advisory companies is based on assets managed by the firms, growth, technology spending, succession planning, and other metrics.

       2 Retention Rate Source: Allworth Internal Data, FY 2022

      3 The NBRI Circle of Excellence Award is bestowed upon NBRI clients meeting one or both of the following criteria: Total Company score at or above the 75th percentile of the NBRI ClearPath Benchmarking Database and/or improvement of five (5) or more benchmarking percentiles in Total Company score over the previous survey. 

      4 As of 7/1/2024, Allworth Financial, an SEC registered investment adviser and AW Securities, a registered broker/dealer have approximately $22.5 billion in total assets under management and administration. 

      5 InvestmentNews 2020 and 2021 Best Places to Work for Financial Advisers. The ranking reflects survey responses and scores completed by both employers and employees. Employers report their organization’s workplace policies, practices, and demographics. Employees complete a survey designed to measure the employee experience. 

      6  2021 Value of an Advisor Study / Russel Investments

      7 Ranked 9th Top Wealth Managers By Growth in Assets in the U.S. from RIA Channel, 2022. RIA Database and RIA Channel are registered trademarks owned by Labworks, LLC.

      8 USA Today Best Financial Advisory Firms 2024. The ranking is based on the growth of the companies’ assets under management (AUM) over the short and long term and the number of recommendations they received from clients and peers.

      9 NBRI Best in Class Ethics 2023. The Best in Class level is bestowed upon clients performing at or above 90 percentile of the NBRI ClearPath Benchmarking Database.

      ✢ Scott Hanson, Investment Advisor 2005, 25 most influential people in the financial services industry. The ranking reflects 25 people who Investment Advisor magazine believes have had or will have the greatest influence on the financial services industry.

      ✼Pat McClain, InvestmentNews 2014, Invest in Others Community Service Award, presented to an advisor who has made an outstanding impact on a community through managerial contributions to a non-profit organization.

      †Financial Times, FT 300 Top Registered Investment Advisers, June 2019. The ranking reflects six areas of consideration including the company's years in existence, industry certifications of key employees, AUM, asset growth, SEC compliance record and online accessibility and calculates a numeric score for each company. 

      Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™, CFP® (with plaque design) and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.