With most stock markets resembling a roller coaster, it’s easy to think that successful investment is just a matter of timing. Buy stock cheap, just before the price starts to climb, and sell just as it reaches the summit and begins its rattling descent.
Timing the market in this way is actually an effective way to lose money.
Why timing the market never works
When markets are volatile, they go up and down with little apparent cause, and even less warning. You simply don’t know what any stock is going to do next. It’s an old piece of stockbroker’s wisdom that nobody rings a bell at the top of the market. Unless you have access to tomorrow’s stock prices, you are just as likely to sell a winner before it peaks and to buy a cheap stock that is set to become even cheaper.
Share prices always fluctuate, but the markets seem to have been particularly volatile given the current uncertainty in the world. You simply can’t predict which way it will go from one day to the next
This means that timing the market actually means making trades at random. This means the chances of getting a decision right are much more unpredictable.
You could be lucky, or have previous experience and an expert eye to keep on market trends. But generally speaking, trying to time the market though its ups and downs may decrease the amount you are likely to earn.
To make money, you simply need time in the market.
Time in the market builds wealth
The more money you have invested in the market, and the longer it has to grow, the greater the potential profits can be.
The key to success is to have an investment plan and stick to it as the market declines and recovers, to allow overall steady growth. Sharp falls in share prices can be frightening. But there is no point in selling and crystallising the loss. Simply ride out the ups and down and benefit from the recovery when it comes.
What can you do?
Investing regularly and staying invested can help smooth out market highs and lows over time.
The simple technique of pound cost averaging can help. With it you invest a small amount regularly. It can reduce exposure to a market downturn, reducing losses by averaging them against gains.
In a volatile market, the average price per share tends to work out lower when you save regularly. Regular small contributions can build into a sizeable pot, and investing in this way can increase the value of your investments in the long term. Paying monthly direct debits from your current account into a regular saving scheme make investing simple.
When you need to think about your investment plans, it might pay to get professional help.
At Continuum, we believe that you can potentially profit from the recovery – but that the best way to do it is with a considered long term investment strategy.
Many people have been forced to look at their investment plans again after the coronavirus fallout. There is no formula that guarantees investment success, but having an investment strategy based around your investment needs, that offers a broad range of investment and the technique of pound cost averaging – and above all is for the long term – may be the best solution.
When you need to think about your investment plans, it might pay to get professional help. At Continuum we can provide the help and expertise you need
Get in touch. To discuss how to plan your investments in now, please call us.
The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation to suitable investment strategy, you should seek independent financial advice before embarking on any course of action.
The value of investments can fall as well as rise and you may get back less than you invested.
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