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Time in the market is more important than timing the market

If you want to give your investments the best chance of earning a return, then it’s a good idea to cultivate the art of patience. The best returns tend to come from sticking with a long-term commitment to your investments.

The longer you’re prepared to stay invested, the greater the chance your investments will yield positive returns. That means holding your investments for no less than five years, but preferably much longer. During any long-term investment period, it is vital not to be distracted by the daily performance of individual investments. Instead, stay focused on the bigger picture.

Putting your money into the market
Success in the stock market is all about time and patience. But it’s understandable that when you put your money into the market, you will be tempted to check up on how your investments are performing on a regular basis – and in our technology-driven age, you can monitor them 24/7.

Seeing investment prices fall, sometimes with alarming speed, can be enough to spook even the most experienced of investors. But remember that the reasons why you identified a particular fund or share as a sound investment in the first place should hopefully not have changed. The fall could just be down to market conditions as much as anything the individual company or fund manager has done, and in many cases, given enough time, investments should hopefully recover their value.

Leave your emotions to one side
However, at the same time, it is essential to leave your emotions to one side, because on occasion there could be a good reason to sell. Just because something appeared to be a good investment a year ago doesn’t mean it will be going forward. Developing the art of patience will help keep you focused on your goals. Whatever happens in the markets, in all probability your reasons for investing won’t have changed.
Some investors develop their own exit strategy knowing in advance how far an investment’s value must fall or rise before they will consider selling. Such a plan can enable investors to ride out short-term market corrections and movements.

Help smoothing out your returns
Bear in mind, too, the benefits of so-called ‘pound-cost averaging’ during periods of market volatility. Essentially, if you are investing on a regular basis, your contributions will buy more shares when prices are low and less when they are expensive. Over the long run, this should help smooth out your returns, though there is no guarantee of this.

Too much tinkering not only undermines your investment aims but will also ratchet up the costs. Every time you buy or sell an investment, there’s a charge – sometimes several will be incurred. Investors can easily overlook the reality that by making even small adjustments, the charges can start eroding any profits earned.

Rebalancing your portfolio’s risk profile
As a result, for many investors, it’s best not to develop a regular buy-and-sell habit. And remember, no one knows which days will turn out to be the best trading ones – and by being out of the market, you could miss them.
For all investors, there will come a time when the portfolio needs to be rebalanced. A major reason for a realignment is when the actual allocation of your assets – be that shares, government bonds, corporate bonds or cash –no longer matches your risk profile.

Keeping your investments appropriately diversified
Alternatively, it may be because your investment horizons have shortened. Perhaps, for example, your retirement date is getting closer. These are solid reasons for selling some assets and buying new ones to keep your investments appropriately diversified. Any period of active portfolio management should be a process of change, which is both well planned and well executed. It may be tempting to spend any income generated by your investments, but if you don’t need it in the short term, why not plough it back into your portfolio? This will increase the number of shares you own. And, of course, a bigger shareholding means more dividend payments next time around.

Need a helping hand planning your financial future?
Whatever you want your financial future to look like, we’ll help make it a reality. So if you need a helping hand planning your financial future or navigating the world of investments, we’ll guide you through the process.
To find out more, please contact Matthew Bromley, Chartered Financial Planner at Cowgills Wealth Management.

This article is for general guidance only. It provides an outline, and may not include points which are important to your situation. You should not depend on this blog without taking advice based on the full facts of your case. The information given was correct at the time of publication.


The information was correct at time of publishing but may now be out of date.

Corporate Finance
Posted by Matthew Bromley
3rd September, 2018
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