Can you time the market?

When you’re new as an investor … among everything else that’s so new, you also feel like everyone’s talking about, is now really the right time to start? Now the market is so high and everything is so expensive. Do you have to wait? I have heard this talk since I started in 2015 and I know that one day it will be true. No doubt … but the question is just when? I don’t think I can time the market. So I continue to invest regularly every month and do not touch the money in my long-term portfolio.

..the only problem with market timing is getting the timing right.

– John Buckingham

If you hold your investments for 20 years, you will never get a negative return

Yes, at least that’s what this study that I found shows. Now, of course, you cannot guarantee this for the future, but in a study done by the Charles Schwab Company in 2012, where they looked at the American index S&P500 between 1926 – 2011, they could see that a 20-year period never gives a negative return. 

Their research showed that the longer you hold on to your investments, the less volatility you get (that is, fluctuations in the portfolio). If you stick to your investments for 1 year, the ‘range of return’ is e.g. +54% and -43.3% (see the table below, find the source HERE ).

Year Range of return: (positive return / negative return)

  • 1-year period: +54% / -43.3%
  • 3-year period: +31.1% / -27%
  • 5-year period: +28.6% / -12.5%
  • 10 year period: +20.1% / -1.4%
  • 20 year period: +17.9% / +3.1%

If you try to time the market, you may miss the best days!

When you try to time the market, it is possible that you miss the stock market’s best days. Yes, of course also the worst days, but it has proven to be really important that you are in the market on the best days. 

Below you see a graph which is used when you want to argue that it is good to hold on to your investments, even when the weather is windy. The most important thing is to be on the market. The figure shows that it is often only a short period that accounts for a large part of your return.

If you have not invested right in this period, the best days, this can affect your return quite a lot.

There are quite a few investment solutions out there – strategies that claim to be able to time the market. But I don’t think these are very long in the spotlight. If you ask me, I definitely think that these are honest attempts to time the market, but the problem is that no one knows what the stock market will look like in the future …

Those who make it, have rarely done it over a long period of time. I have e.g. not yet read about mutual funds that have consistently outperformed indices over a long period of time (please comment if you have a suggestion or a study :)).

Yes, now I am writing this, but of course, there are better or worse times to buy or sell. This is because the market is volatile and we investors are largely driven by emotions. 

The big question is just how do we know when? Just because it has been a bull market (positive trend) for a long time does not mean that we have had the best days yet. Perhaps we have to go up even further before it is time for another correction. I can’t possibly answer this, and I don’t know anyone who can with 100% certainty… 🙂

So I’m long-term. I’m sticking around and I’m buying more. How do you do?

Should you invest everything at once or spread it out?

If you are new to shares and funds and are unsure whether now is the time to start, I just want to say that if it were me, I would start right away. Not with the big money, but start with your monthly savings. 

The best thing we have when it comes to investing is time. TIME. So I think you just have to start… This is said with the assumption that it is money that you can do without for a long time. Preferably min 10-15 years. 

If you have a bigger bag of money, it might feel better if you spread your investments over time. Focusing on feeling better. Because if you ask me, the most important thing is to be in the market. The sooner the better. But then you have to be aware that it may well be the case that the market goes down by 30% over the coming months. And you have to be okay with that. Because you are long-term. 

In addition, calculations based on historical data say that the probability of a better return increases with the time you invest. That is, if you are truly long-term, it doesn’t matter as much when you entered.

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