Three Reasons to Avoid Trying to Time the Market
It is hard to keep up with the flurry of news and noise coming from the financial sector. When it comes to market forecasts, will the sky be falling soon, or are we set to soar some more? Are you feeling tempted to get out of “high-priced” markets while the getting seems good? Here are three compelling reasons to avoid trying to time the market in this manner.
1. Markets (Still) Aren’t Predictable
Before you decide you’d like to stay one step ahead of a market that seems certain to rise, fall or head sideways, consider this from The Wall Street Journal personal finance columnist Jason Zweig: “Yes, 2018 is full of uncertainty and teeming with hazards that might make the stock market crash. So was 2017. So were 2016, 2015, 2014 – and every year since stockbrokers first gathered in New York in the early 1790s.”
2. Economists Aren’t Wizards
A day rarely goes by when you can’t find one respected economist suggest we’re headed for a financial fall, while another opines that we’re going to keep going like gangbusters. Which is it this time? As one Bloomberg columnist reports, “a 2014 study by Prakash Loungani of the International Monetary Fund found that not one of the 49 recessions suffered around the world in 2009 had been predicted by a consensus of economists a year earlier. Further back, he discovered only two of the 60 recessions of the 1990s (globally) were anticipated a year in advance” (with “recession” defined in the referenced paper as “a year when output growth was negative”).
3. You Can’t Depend on Your Instincts
Still thinking of trying to sell ahead of a fall? For this, and any other investment “hunch” you may have, your best bet is to assume it’s a bad bet, driven by your behavioral biases instead of rational reasoning. For example, loss aversion can trick you into letting the potential for future market losses frighten you away from the likelihood of long-term returns. Couple that with our oversized bias for seeing predictive patterns, even where none exist, and it’s all too easy to talk yourself right out of any carefully laid plans you’ve established for your wealth.
For these reasons and more, we’re here to advise you: Your plans aren’t there to eliminate uncertainty. They’re there to counter the temptation to succumb to it. As the financial author, Tim Maurer likes to say, “personal finance is more personal than it is finance.” We couldn’t agree with him more.