30-10-2017 03:50 PM - edited 30-10-2017 03:51 PM
When it comes to long term investing should you really worry about timing your investment to perfection if you are looking to invest over the next 10, 20 or 30 years?
Investing in the stock market can be highly beneficial if you gets the timing just right. But in practice this is particularly difficult to do.
Investors who stayed in the market over the past 10 years would have earned solid returns, well above the rate of inflation.
Investing £10,000 in the FTSE 100 at the start of 2007 (inconveniently just before the financial crisis) would have generated an 81.5% total return, or 5.6% annualised return, to-date. Not too shabby considering this would have been in the market during one of the worst financial downturns in history!
Attempting to time your entry into the market can be costly. We looked at an extreme scenario: what happens to your total return if you miss the best performing day of each year? The same £10,000 investment would have grown to just £11,700, instead of £18,500.
While this example is admittedly completely unrealistic, it highlights that if you attempt to time the markets, you may can miss some of the best days which contribute to long term portfolio growth.
If you are planning to time your entry into today’s market which fundamentals are you looking at to help your decision?
Or, if you are sitting on the sidelines for now, what concerns you the most. High equity valuations? Political uncertainty? The withdrawal of ultra-accommodative monetary policy?
04-11-2017 11:01 AM
Agree overall with the assertion that 'time in the market > timing the market', but there is a case for having some cash available for 'special situations'.
From my own experience, I tied too much cash up in capita [CPI]. The subsequent caning means that I am happy to keep it as a LTBH, but it did mean that I couldn't put more money into AA after the share price was nobbled by the antics of the CEO who was kicked out. I don't see the fundamentals of AA's business changing as much as the share price fell, and would have liked to top up more. Similarly, I had kept some 'special situations' cash on hand which I used to buy our hosts, IGG, after the share price plummeted last December. What a good move that turned out to be. A 30 % improvement in SP at the start of say a 10 year hold certainly helps bump up the return.
So I suppose the argument is similar to that posed by the rise of passive funds - Do you just put all your money as soon as possible into a tracker and let the inexorable long-term rise of the market guarantee your return, or do you want to be a bit more 'on-the-edge', and try to find an extra tweak here and there?
Ho-hum. In the end though, the former position is the safest.
06-11-2017 12:29 PM
Agreed. Setting aside a portion of your funds for buying opportunities can definitely be advantageous.
A key reason we launched Smart Portfolios is to complement our existing Share Dealing offering. We would like to think that our clients will use our range of Smart Portfolios to manage the core of their wealth but use our Share Dealing platform to trade their best ideas.
2016 equity returns and the opportunities arising from the EU referendum provide a good example of how this approach can work successfully. While the FTSE 100 returned around 19% over the course of the year, on the day of the referendum, certain sectors got smashed and in hindsight presented a great opportunity to invest in some good companies at an attractive discount.
UK housebuilders being a sector that springs to mind! To-date, Taylor Wimpey, Barratt Developments and Permission are up 58%, 67% and 97% since the 24th June 2016, respectively.
4 weeks ago - last edited 4 weeks ago by JamesIG
Warren Buffet“Be Fearful When Others Are Greedy and Greedy When Others Are Fearful”
What investors need to do is to understand trading psychology and develop a " long term mindset", investors need to apply trading psychology and use it for creating a long term investing psychological mindset. Patience is the most important skill in investing, waiting for the opportunity is patience , sometimes a investor has to wait months for an opportunity and do nothing.
Market timing is often possible, using technical systems, technical systems are road maps and navigators.
"Out of 250 trades in a year, it comes down to five, three of those will be wrong and you will lose a fortune and two will be right and you will make a fortune; for the other 245 trades-you should have been sitting on your hands."
Warren Buffet“The difference between successful people and really successful people is that really successful people say no to almost everything.”
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