Time or Timing in the markets
How important is it for investors to time the markets?
I know a retired man who cashed in his retirement pension to buy a car when the markets were hot. It was February 2020 when covid-19 was starting to spread around the world. The following month, the markets began to fall. I said, “no wonder you’re smiling.”
It was luck rather than good management, but it could be considered a good time even if it was a fluke.
There are other cases of investors who were not so lucky.
One was an investor who switched from growth funds to conservative funds during the market downturn only to find he missed out on all the gains when the market rallied, losing them by the thousands.
Another is an investor who used part of his retirement funds for a deposit on a house as he can do with kiwisaver, New Zealand’s retirement savings scheme. Sounds good, but they withdrew whatever amount they could at a time when the markets were down and losses would have been fifteen thousand dollars. Just like the other investor who switched funds, this investor also missed out on gains when the markets rallied.
The property market in New Zealand has gone crazy in 2020 due to the number of New Zealanders returning home and buying houses. Many people have jumped on the real estate buying bandwagon. It’s the FOMO factor at play here. FOMO, for those who don’t know, means “Fear of missing out”.
A common theme that emerges from all of this is that the real estate market is out of reach for first-time home buyers. It’s always important for people to build their asset base and find other ways to invest their money because having assets behind you puts you in a better financial position for whatever happens. .
The key to investing is doing it the right way. You wouldn’t invest in growth funds if you had to use the money for other short-term purposes because the markets could fall just before you took the money out. On the other hand, if you have time on your hands, investing in riskier funds may be an option if you have the temperament to handle the volatility.
An investor must decide whether this money will be used for the long term, the medium term or the short term and set his goals accordingly. An investor’s risk profile is another factor to consider; It’s easy to be an investor when the markets are rising, but if the roller coaster of growth stocks is going to make you lose sleep, you need to be a little more conservative.
The investor who switched to more conservation funds when markets headed lower and missed out on gains when they rallied let their own emotions take over. It is important for investors to pull themselves together and practice investing with the right mindset.