Market Timing and Other Investing Myths, Sound Financial Group

BLOG: The “Market Timing” Myth

Part III of the “The Illusions of Investing” series with Paul and myself addresses one of the most widespread illusions held by investors, that of credible “market timing”, by which an individual or group can confidently schedule investing decisions for a guaranteed profit or, in effect, “predict” whether or not the market will go up or down at a particular moment. While there are always examples of well-timed investing decisions, not to mention good luck, the idea of reliably timing the market for success is both infeasible and unhealthy for investors.

Any attempt to move investments based on a prediction or “forecast” should be regarded with some suspicion. Many of us, for instance, have encountered the phrase “tactical asset allocation” in the course of our interactions with fund/asset managers, often as it is accompanied by some reference to finding just the right moment at which to get in or out of the market. However, tactical asset allocation is ultimately nothing more than just a better-testing name for the concept of predicting market behavior. As evidenced by the millions of individual investors who have chosen poorly when deciding when to enter or exit the market, the widespread practice of market timing or tactical asset allocation has contributed to the remarkably low* returns reported among individuals who invested in equity-based mutual funds over the past three-and-a-half decades. 

Professional management of an investment account should not be confused with constant activity, let alone the loftier notions of predicting market trends on a global or even national scale for consistent success. The outlets that do peddle these types of overactive strategies, whether it is the broader actively-managed mutual fund complex or the competing trading platforms that preach do-it-yourself investing, are often far more interested in wrangling business for themselves than providing proper guidance to those looking to invest. 

Time and again, the assessment of investment managers’ success with market timing remains overwhelmingly negative. Even among the most accomplished investment professionals, no evidence establishing a viable connection between attempts to time the market and consistent financial gain has been found. From every available indication, market timing just does not work. Remember, “it’s not timing the market; it’s time in the market that produces returns”.

Visit sfgwa.com today to learn more about the best practices for investing and securing your family’s financial future. You can also follow along as Cory and Paul debunk a host of popular investing myths throughout their “The Illusions of Investing” series; the complete list of installments can be found at https://sfgway.com/podcast-blog/

*The average individual investor invested in equity-based mutual funds only returned 4.28% from 1985-2017.