Market timing involves moving your money in and out of investments (typically stocks) to try to catch all the performance highs and avoid all the lows. Not even the savviest market players are likely to succeed at this game.
The main risk in market timing is that you’ll miss out on periods of strong performance. Historically speaking, while the long-term direction of the various financial markets has been upward, the climb has not been steady and gradual, but more like a series of short spurts.
Here’s what would have happened if you had missed the best days in the stock market from 1997 through 2017:
Maybe you really do have a knack for knowing when to buy and sell. You still have little chance of beating market averages, thanks to commissions and other costs you incur with each transaction.
Typically, a buy-and-hold* approach to long-term investing makes a lot more sense than market timing. Buying and holding shifts your focus from short-term market movements to long-term financial goals, like retirement. That’s exactly where your attention should remain.
To learn more about principles of sound investing, call your EY financial planner at 1.877.927.1047, Monday through Friday from 9:00 a.m. to 8:00 p.m. (ET).
*Buy-and-hold is an investment strategy in which you buy securities, such as stocks, and keep them for a long time instead of reacting to market fluctuations.
This article is used with permission of Ernst & Young LLP.