Timing the market vs time in the market

Published in Burblah.com, April 2012 by Janine Cox

‘Timing the market’ is not just a strategy that investors need think about when looking at the share market, as the GFC has shown that even property is not safe from volatility.

Most investors are familiar with the theory that if you invest in quality property that your investment will double every ten years, however, post the GFC and the floods Queensland property owners and investors will no longer bet their house on this occurring.

Falls of between 20-40 per cent have been seen with the consequence being that many investors have negative equity and are still no better off when it comes to understanding the importance of timing.

This is all because many in the financial industry continue to keep people in the dark about it.

When it comes to the share market the subject of timing has been glossed over as well as many of the big fund managers encouraged investors into the share market by stating that if you let your investment grow for 7-10 years that on average you will make between 8 and 12 per cent.

So rather than preparing the public for a typical investment cycle that has ups and downs, what this has done in the past is to create a false expectation that set investors up to lose more than their money when the low in the cycle finally arrived.

Not only did they lose cash, a lot of hard working Australians lose future opportunity get ahead as they opt to never to enter the market again, or if they do come back its usually at the wrong time, when the tip of the next boom is unfolding.

The solution is to educate more people about timing, particular those managing their own superannuation.

For example, if you timed your entry into the market in Dec 1998 or Dec 2008 your returns would have been worse than bank interest.

Compare this to someone who invested in 1995 for ten years.

It is important to remember that the result can change depending on what month you began investing in as well as the year.

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