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Is Market Timing a Smart Investment Strategy?
You may have heard that timing is everything. And in many walks of life, that may be true – but not necessarily when it comes to investing.
To understand why this is so, let’s look at three common mistakes investors make:
While trying to time the market is a difficult investment strategy even for the professionals, it doesn’t mean you can never take advantage of falling prices. In fact, you can use periodic dips in the market to buy quality assets at more attractive prices. Suppose, for example, that you invested the same amount of money every month into the same investments. One month, your money could buy more shares when the price of the investment is down – meaning you’re automatically a savvy enough investor to take advantage of price drops. While your money will buy fewer shares when the price of the investment is up, your overall investment holdings will benefit from the increase in price.
Buying low and selling high sounds like a thrilling way to invest. But in the long run, you’re better off by following a consistent investment strategy and taking a long-term perspective. It’s time in the market, rather than timing the market, that helps keep portfolio returns moving in the right direction over time.
This article was written by Edward Jones for use by your local Edward Jones Financial Advisor.
Is Market Timing a Smart Investment Strategy?Short /Radio version:
In some walks of life, timing is everything – but not necessarily when it comes to investing.
In fact, when pursuing a risky market timing strategy, investors may make a few key mistakes:
First, they sell investments based on a prediction that prices will drop. But if the prediction is wrong, these investors may miss out on a market rally.
Second, market timers sell underperforming investments in favor of those that are currently doing well. But today’s “losers” could be tomorrow’s “winners.”
Finally, some people wait for uncertainty to disappear before they invest. But there will always be uncertainty and risk in the financial markets, so if you followed this strategy, you’d never invest.
You don’t have to time the market to take advantage of price movements. For example, if you invest the same amount each month into the same investments, you’ll buy more shares when the price is down and fewer shares when the price rises.
In the long run, it’s time in the market, rather than timing the market, that can lead to success.
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