By investing in bonds, stocks, or mutual funds, investors have the opportunity to increase their rate of return via market timing: investing when stock markets rise, selling before they drop. A good investor can time to market wisely, choose a good investment, or use a combination of the two to increase his rate of return. However, any attempt to increase the rate of return by market timing carries an increased risk. Investors who try hard to set the time of the market should realize that sometimes the unexpected happens and they may lose money or forfeit excellent returns.
It is difficult to synchronize the market. To be successful, you must make two correct investment decisions: one to sell and the other to buy. If you are wrong in the short term, you will not be so lucky. Also, investors should know that:
1. Equity markets are rising more than they are falling.
2. When stock markets are down, they tend to go down very quickly. That is, short-term losses are more dangerous than short-term gains.
3. Most of the gains recorded by the stock market are recorded in a very short time. In short, if you miss a good day or two in the stock market, you will lose most of the gains.
Not many investors save time. John H. Ilkiw’s film “The Portable Pension Fiduciary” highlights the results of a comprehensive study of institutional investors such as mutual funds and pension fund managers. The study found that the average money manager adds some value by choosing investments that outperform the market. The best money managers added more than 2 percent annually due to stock selection. However, the average money manager lost value through market timing. So investors should be aware that timing of marketing can add value, but there are better strategies that increase long-term returns, take less risk, and have a higher likelihood of success.
One reason why it is difficult to correctly determine the time is that it is difficult to remove sentiments from your investment decision. Investors who invest in sentiment tend to overreact: they invest when prices are high and sell when prices are low. Professional money managers, who can take sentiment out of their investment decisions, can add value by properly timing their investments, but most of their excessive rates of return are still generated through stock selection and other investment strategies. . Investors who want to increase their rate of return through market timing should consider a good Tactical Asset Allocation Fund. These funds aim to add value by shifting the investment mix between cash, bonds and stocks by following strict protocols and models, rather than emotion-based market timing.