“Is it possible to time the market?”
As this topic has come up a few times recently I wanted to stop and talk about it.
In conversation last week with one of my dear clients who is already in retirement, she asked the question, “as markets have been down so much and I’ve lost money, would you say it’s time to sell?”
This was a very good question and I’m glad she knows that she can ask me anything.
I paused before I responded as I wanted her to know that I understood her situation and why she was asking. My sincere response, “never”, with a more detailed response.
The day we were having the conversation also turned out to be one of the best positive days in more than two years in the markets.
As I have been in the industry for many years, and while it may be uncomfortable to watch the decline in the markets and your investments, I also understand that if you were appropriately allocated prior to the market decline, then wholesale changes should not be made. While there may be opportunities to tweak a portfolio during down markets, selling everything and sitting in cash is almost never the right idea – unless you needed the cash in the first place, and the monies should not have been in the markets.
I walked her through the way we had both allocated her short-term needs, which were in cash and not subject to the markets, and the monies that were allocated for long term growth, was invested based on her appetite for risk.
I always advise clients that in order to invest, they need to have a longer-term time horizon. If monies are needed in the very short term, investing is not wise as we cannot time what the markets will do in the near term, but we know that over the long term, the markets will come out ahead.
In my 20 years experience prior to launching my own firm, something became very apparent following the recession of 2008. For the clients who withdrew their investments during the turmoil, they were almost unwilling to get back into the markets, and so while the markets ultimately recovered and had their best run for almost 11 years, they missed the early years and were waiting for a decline to buy, which never fully happened.
For the clients who withdrew part of their money, their returns were far less than it would have been had they fully stayed in.
For the clients who stayed in and rode the decline and did not try to time the market, they fared the best.
There are numerous studies out there that the investors who remain invested over the long term, without attempting to time the markets, historically have fared better. Having a financial advisor who understands your overall goals for your life will be hugely beneficial when the markets are going through their normal cycles, and especially one who has experienced declines before. They will also be able to remind you of what you shared your goals were so that you do not make impulse decisions that could be potentially harmful to your financial life. And sometimes, the advisor will help you to avoid potentially expensive decisions because they understand the financial implications.