Myth 3: You can TIME the market.
There are many ways and strategies to invest in the stock market. Some people claim it is impossible to time the market and others claim they can do it for you perfectly – for a small fee. The truth. However, may lie somewhere between the extremes.
Time in the Market vs Timing the Market?
“Time in the Market” means relying on a Dollar-Cost-Averaging (DCA) strategy where you don’t try to guess when the market is at its lowest or highest point. Instead, you invest consistently which eventually, the fundamentals matter more than the timing. Often, “time in the market” investor will buy ETFs (example: S&P500) which will eventually go higher in the long run.
“Timing the Market” means buying an asset with the expectation of selling at a higher price in the short term, with the popular saying “buy low, sell high”. Market-timing investors are essentially trying to “beat the market” by outsmarting it – or so they think. The fact that the future is uncertain and that stock prices may be volatile, it is essentially impossible to time its lowest or highest point accurately and consistently.
Why is it so tough to time the market?
If were to attempt timing the market, the results are as below:
A use case: Example
Timing the market: The absolute worst vs absolute best vs slow and steady
This myth is indeed not true! In the case study shown, for someone that can perfectly time the market over the last 40 years does not yield a better return than someone that consistently dollar cost average into the market. As a result, I feel that dollar cost averaging might be the best approach for index investing or investing in general – given that the investment will always appreciate in the long-term.
Disclaimer: The information provided by LearnToInvest serves as an educational piece and is not intended to be personalised investment advice. Readers should always do their own due diligence and consider their financial goals before investing in any stock.