Market Timing

Time or Timing in the markets

How important is it for investors to time the markets?

I know a retired man who cashed in his retirement to buy a car at a time when the markets were rising. This was in February 2020 just as covid-19 was starting to spread around the world. The following month, the markets began to slide. I said, “no wonder you’re smiling.”

It was good luck rather than good management, but it could be considered good timing even though it was a fluke.

There are other cases of investors who were not so lucky.

One was an investor who switched from growth funds to conservative funds during the market downturn only to find that all the gains were lost when the market rallied, losing thousands.

Another is an investor who used part of their retirement funds for a deposit on a house like they can with kiwisaver, New Zealand’s retirement savings plan. That sounds good, but they withdrew what they could at a time when markets were falling and losses were said to be $15,000. Like the other investor who switched funds, this investor also lost the gains when the markets rallied.

The property market in New Zealand went crazy during 2020 due to the number of New Zealanders returning home and buying houses. A lot of people jumped on the property buying bandwagon. It is the FOMO factor at play here. FOMO, for those who don’t know, stands for “Fear of Missing Out”.

One common theme that emerges from all of this is that the real estate market is out of reach for first-time home buyers. It’s still important for people to build their asset base and find alternative ways to invest their money because having assets behind you puts you in a better financial position for whatever is to come.

The key to investing is to do it the right way. You would not invest in growth funds if you were going to use the money for another short-term purpose because the markets could fall just before you withdraw the money. On the other hand, if you have time on your side, investing in riskier funds may be an option if you have the temperament to handle volatility.

An investor must decide if this money will be used in the long, medium or short term and set their goals accordingly. An investor’s risk profile is another factor to consider; It’s easy to be an investor when markets are rising, but if the roller coaster of growth stocks is going to make him lose sleep, then he needs to be a little more conservative.

The investor who switched to more conservation funds when markets headed south and lost profits when they rallied allowed their own emotions to get the best of them. It is important for investors to excel and train themselves to invest with the right mindset.

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