Ken Moraif, host of Money Matters, claims to have a unique algorithm that allows his clients to time the market, i.e., know when it’s best to get in and out. He believes a timing strategy is required for investors to have success—but that thinking goes against all academic research and the opinions of most highly respected financial pundits.
John Bogle, founder of Vanguard Funds, notes, “After nearly fifty years in this business, I do not know of anybody who has done it (market timing) successfully and consistently. I don’t even know of anybody who knows anybody who has done it successfully and consistently.”
Benard Baruch, economic advisor to presidents Woodrow Wilson and Franklin Roosevelt, is a bit more blunt: “Only liars manage to always be out during bad times and in during good times.”
We get plenty of inquiries from potential clients who wonder if now is a good time to get into the market. They assume that their success as an investor will be predicated on their ability to buy and sell stocks at the right time—and repeat that process over and over. The financial media has perpetuated this misinformation, since these “talking heads” focus on attracting viewers rather than dispensing advice.
The numbers don’t lie. According to an April 2014 report from Dalbar, a financial data firm, investors averaged a return of 5.02 percent over a 20-year period, while the S&P 500 created returns of 9.22 percent over the same time frame. That discrepancy was caused by entering and exiting the market at the wrong time, meaning the average investor runs the risk of losing gains of almost 50 percent by trying to time the market.
The graphic below is even greater indictment of the folly of market timing, as it clearly notes how much can be lost by missing as little as one best day.
At WorthPointe, we prefer to take a balanced approach to investing, ensuring our clients have a smooth ride rather than the jerkiness (and lost returns) that can result from trying to time the market. This includes recommending options that will be beneficial for the long term and support the achievement of specific financial goals.
We’re far from alone in espousing this type of investing and shunning the market timing approach. Legendary fund manager Peter Lynch tells it like it is: “I can’t recall ever once seeing the name of a market timer on Forbes’ annual list of richest people in the world. If it were truly possible to predict corrections, you’d think somebody would have made billions doing it.”
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