Time, Not Timing, Is the Key to Long-term Success
It’s not getting in and out of the market — it’s adhering to a sensible investment strategy over time
When the markets undergo stress, some investors worry that their net worth is diminishing permanently. Sometimes, these folks panic, selling at or near a market bottom, and then wait too long to get back in once the market recovers. This becomes a danger during larger-than-typical market declines, when some investors make decisions based more on emotion than logic.
History has shown that financial markets recover after even steep declines; it’s just a question of time. A mountain of evidence also shows that no one can predict the future, including the direction of the stock market. There’s little use in trying to base your investment plans and decisions on the predictions of others.
Indeed, you can lose more money by trying to time the market. This is mostly because market timing involves two decisions: knowing when to get out, and knowing when to get back in. Getting both decisions right is devilishly difficult, even for professional investors. In addition, selling at the wrong time locks in actual losses, while staying invested only incurs losses on paper — they don’t really affect you until you sell.
Be a “Steady Eddy”
Instead of trying to time the market, you should establish a solid, long-term investment plan and stick to it. Contributing to your retirement plan each month imposes a certain discipline that has the potential to make you more money over time.1 This is because your regular investment buys fewer shares of a fund when prices are high, but more shares when prices are low. The result? A lower average cost per share that can result in more money to spend in retirement.
There is no guarantee that dollar-cost averaging will generate a profit or protect against investment losses. Investors need to carefully consider whether they can continue to invest in an extended down market. Disclosure: This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal or investment advice. LPL Financial and its advisors are providing educational services only and are not able to provide participants with investment advice specific to their particular needs. If you are seeking investment advice specific to your needs, such advice services must be obtained on your own separate from this educational material. Kmotion, Inc., 412 Beavercreek Road, Suite 611, Oregon City, OR 97045; www.kmotion.com
© 2016 Kmotion, Inc. This newsletter is a publication of Kmotion, Inc., whose role is solely that of publisher. The articles and opinions in this newsletter are those of Kmotion. The articles and opinions are for general information only and are not intended to provide specific advice or recommendations for any individual. Nothing in this publication shall be construed as providing investment counseling or directing employees to participate in any investment program in any way. Please consult your financial advisor or other appropriate professional for further assistance with regard to your individual situation.