If the recent rally has you feeling lucky about jumping in or out of the markets, this may cost your portfolio. No one knows how the markets will move next, which makes it difficult to time when to buy or sell. Research consistently shows that trying to time the market can lower your returns substantially.
Instead of being distracted by short-term trends that may temporarily affect the markets, keep your goals in mind. If you’re investing for retirement, it may be better to limit portfolio reviews to a set schedule, instead of when you may be reacting to headlines.
The Cost of Market Timing
Your chances of generating a positive return improves the longer you stay fully invested. Research confirms your best strategy is not trying to time the market, but spending time “in” the market. Of course, this doesn’t ensure a profit or guard against a loss when markets decline, and past performance is no guarantee of future results.
Time is on your side
If you had been investing in the last 15 years, your chances of generating a positive return would have improved the longer you held onto the investments.
The longer you would have held,
the greater your chance for positive returns
Your Long-Term Goals Deserve an Established Approach
Markets are going to change. And when that happens, you may be tempted to jump out. Taking chances like that could affect your long-term investments. And it may even cause you to miss out on the best days in the market. Look at the drastic difference below – $9,000 vs $43,000!
Jumping in and out of the market may cost your portfolio
Three Tips to Consider Implementing Now
Make it automatic
One way to be sure you regularly invest for your future and take advantage of market swings is to use an automatic investment plan. Having one in place may help you from letting emotions drive your investing decisions.
Mix it up
Create a portfolio that is a mix of stocks, bonds and money markets securities – called asset allocation. When you spread your investments across different types of assets you may lower your overall risk2.
At least once a year, make sure your portfolio still meets your goals, comfort level with risk and timeline. If things have changed, use our Investment Planner or call us to help get back on track.
The bottom line? Don’t count on luck – make informed decisions. Your investment goals are important. You can save yourself unnecessary stress and anxiety in the short-term if you have your long-term plan in place.
1 Sources: Global Financial Data Inc., FactSet; Standard & Poor’s; American Century Investments. The chart shows holdings of 90 one-year periods, 86 five-year periods, 81 ten-year periods and 76 fifteen-year periods. The data assumes reinvestment of all income and does not account for taxes or transaction costs.Stocks are not guaranteed and are more volatile than other asset classes. Stocks provide ownership in corporations that intend to provide growth and/or current income. Capital gains and dividends received may be taxed in the year received. An investment cannot be made directly in an index.
2 This strategy doesn’t assure a profit. It is possible to lose money with an asset allocation and diversification plan.
For educational use only. This information is not intended to serve as investment advice.
Investment return and principal value of security investments will fluctuate. The value at the time of redemption may be more or less than the original cost. Past performance is no guarantee of future results.