Time in the market vs Timing the market.

Investors like to buy low and sell high but the likelihood of success in trying to predict when and where these opportunities occur is minimal.

The main issue with timing the market is that it rarely works. Of course, some investors get lucky and might manage to do it occasionally, but nobody can consistently predict short-term market movements. Markets are unpredictable and often illogical and so it is extremely hard to know where they will be going next. As markets fall, investors want to buy (ideally, when markets reach their lowest point), in order to maximise profit when markets start to rise again. The main challenge with this strategy is that the ‘bottom’ only becomes visible retrospectively. 

Focus on your time in the market

So instead of trying to time the market, why not focus on your time in the market, investing for the medium to long-term, as opposed to what is happening over the short-term? Market blips happen all the time, and as an investor, it is important to learn to ride the waves rather than trying to fight them. It isn’t easy to see the value of your investments fall and it can be stressful and unsettling. However, it is important to remain calm and focused on your objectives. Studies show that the longer you remain invested, the more likely you are to see positive growth. Another way to smooth out volatility is to make sure you have spread your money across different investment types and regions. 

Don't get caught up in the media

Investors sometimes exhibit herding by mimicking the behaviour of others, especially in times of uncertainty. However, the majority is not always right, and basing one’s investment decisions on the actions of others makes little sense given that investors will have different investment objectives and financial circumstances. It can be easy to get caught up in the media (mainstream and now social) noise and short-term geopolitical and macroeconomic events. A litany of stories from 24hr news tends to exacerbate emotion. The media often put too much emphasis on short-term events and turn them into long-term themes.

Invest little and often to take advantage of market movement

If you want to take advantage of the lows, an option is to consider investing little and often – known as pound cost averaging. Therefore, when markets fall, investments become cheaper to buy, so it could actually be a good opportunity to grab bargains. And if the value of these investments go up when markets recover, you should be able to make a gain. Drip feeding capital into an investment is just an easy way to potentially take advantage of market movement i.e. timing.

Medium to long term investment horizon

A buy-and-hold strategy, though, is not easy as it requires patience and discipline. There may be prolonged periods when the strategy does not appear to be working, but could ultimately emerge stronger as investments capture the upside throughout market cycles. Having a medium to long-term investment horizon can help avoid making poor short-term investment decisions.

Time in the market, not timing the market is therefore what is important.