Paul's Insights: Shares hit new highs but time not timing matters
It’s great news for investors – and that includes the millions of Australians who have at least part of their super invested in Aussie shares.
The latest share market high will inevitably see some people wondering if now is the right time to cash in their shares. Others will be sitting on the sidelines, waiting for the market to fall before diving in.
It’s always tempting to try and buy when the market is at a low point, and sell when it reaches a high point. You don’t have to be Einstein to see that anyone who can consistently pick this timing will end up very rich.
The problem is that while some investors get it right occasionally, consistently hitting the timing sweet spot is a pipedream for most.
That’s because no one can say for sure how the market will move over the short term. The price of investments especially shares, can be affected by a huge array of factors including economic, political and social influences, and markets have an unnerving habit of moving in sudden jolts in reaction to unpredictable causes.
That’s why it doesn’t pay to try to time your entry into or out of the share market in the hope of a short term win. As legendary US fund manager Peter Lynch once pointed out, “More money has been lost by investors waiting for corrections than in corrections themselves.”
The way to win with shares is to hang on for the long term. There’s a lot of truth to the expression ‘it’s time in the market that counts, not market timing’.
There’s no denying the share market has its bad days, weeks, and even years. And anyone who has invested just as the market has gone into a tailspin can really hurt at the time. As we’ve seen in recent days though, the market has never failed to recover and go on to new heights, and there’s no reason to believe this pattern will change in the foreseeable future
It’s a compelling argument for long term market involvement and a rejection of short term plays. Stay invested with the right blend of asset classes for your investment goals, and let the market take care of the rest.
Paul Clitheroe is Chairman of InvestSMART, Chairman of the Australian Government Financial Literacy Board and chief commentator for Money Magazine.
Frequently Asked Questions about this Article…
Timing the stock market is challenging because no one can predict short-term market movements with certainty. Factors like economic, political, and social influences can cause sudden market changes, making it difficult to consistently buy low and sell high.
Peter Lynch famously pointed out that 'more money has been lost by investors waiting for corrections than in corrections themselves.' This highlights the risk of trying to time the market instead of staying invested.
Everyday investors can benefit from long-term investing by staying invested in the market, which historically has always recovered from downturns and reached new highs. This approach reduces the risk of missing out on market recoveries.
The key to successful investing is focusing on 'time in the market' rather than 'market timing.' Staying invested over the long term allows investors to benefit from the market's natural growth and recovery cycles.
Some investors consider selling when the market hits new highs because they are tempted to cash in on their gains, fearing a potential downturn. However, this strategy can lead to missing out on further market growth.
Instead of trying to time the market, investors should focus on maintaining a diversified portfolio that aligns with their investment goals and stay invested for the long term to ride out market fluctuations.
The article suggests handling market downturns by staying invested and not panicking. Historically, markets have always recovered from downturns, and maintaining a long-term perspective can help investors weather short-term volatility.
Asset allocation plays a crucial role in long-term investing by ensuring that investors have the right blend of asset classes to meet their investment goals. This strategy helps manage risk and optimize returns over time.