Timing the market means investing when stock markets go up and selling before they decline and when investing bonds, stocks, or mutual funds, investors are able to increase their rate of return by market timing. However, any attempt to increase your rate of return by timing the market entails higher risk. The unexpected sometimes happen in which investors could lose money or forgo an excellent return, and this is something investors who actively try to time the markets should realize.
Timing the market is difficult. You have to make two investment decisions correctly if you want to be successful and these are buying or selling. In the short term if you get either one of them wrong, then you're out of luck. Investors should also realize that:
More often, stock markets go up rather than go down.
Stock markets tend to decline very quickly when they do decline. This means that more severe than short-term gains are short-term losses.
Posted by the stock market are the bulk of the gains and they are posted in a very short time. Missing one or two good days in the stock market means you will forgo the bulk of the gains.
Not many investors are good timers. The results of a comprehensive study of institution investors like mutual fund and pension fund managers is noted on John H. Ilkiw's "The Portable Pension Fiduciary." The study concluded that the median money manager added some value by selecting investments that outperform the market. More than 2% per year due to stock selection is what the best money managers added. But losing value is what the median money manager did by timing the market. Thus, investors should realize that marketing timing can add value but that there are better strategies that increase returns over the long term, incur less risk, and have a higher probability of success.
Because of the difficulty of removing emotion from your investment decision, it's difficult to time correctly. Investors who invest on emotion tend to overreact: they invest when prices are high and sell when prices are low. When professional money managers remove emotion from their investment decisions, then they can add value by correctly timing their investments but still, the bulk of their excess rates of return are generated through security selection and investment strategies. If investors want their rate of return to increase through market timing, then they should consider a good Tactical Asset Allocation fund. Rather than emotion-based market timing, these funds can add value by changing the investment mix between bonds, cash, and stocks following strict models and protocols.
Timing the market is difficult. You have to make two investment decisions correctly if you want to be successful and these are buying or selling. In the short term if you get either one of them wrong, then you're out of luck. Investors should also realize that:
More often, stock markets go up rather than go down.
Stock markets tend to decline very quickly when they do decline. This means that more severe than short-term gains are short-term losses.
Posted by the stock market are the bulk of the gains and they are posted in a very short time. Missing one or two good days in the stock market means you will forgo the bulk of the gains.
Not many investors are good timers. The results of a comprehensive study of institution investors like mutual fund and pension fund managers is noted on John H. Ilkiw's "The Portable Pension Fiduciary." The study concluded that the median money manager added some value by selecting investments that outperform the market. More than 2% per year due to stock selection is what the best money managers added. But losing value is what the median money manager did by timing the market. Thus, investors should realize that marketing timing can add value but that there are better strategies that increase returns over the long term, incur less risk, and have a higher probability of success.
Because of the difficulty of removing emotion from your investment decision, it's difficult to time correctly. Investors who invest on emotion tend to overreact: they invest when prices are high and sell when prices are low. When professional money managers remove emotion from their investment decisions, then they can add value by correctly timing their investments but still, the bulk of their excess rates of return are generated through security selection and investment strategies. If investors want their rate of return to increase through market timing, then they should consider a good Tactical Asset Allocation fund. Rather than emotion-based market timing, these funds can add value by changing the investment mix between bonds, cash, and stocks following strict models and protocols.
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