If someone tells you to change your investment portfolio because the market has changed, you definitely should NOT listen to that person!
Market timing is choosing to get in and out of the market, or allowing someone else to decide when to move your money between different asset classes or sectors, at their will. No one knows the future: They are guessing!
Ten-year studies by the Fact Set Research Systems (2003) have shown that being out of the market for just ten of the best market days (days the market goes up) during a ten-year period will reduce your returns approximately by 50 percent. Being out of the market twenty of the best market days during those ten years will give you a return of .24 percent, and being out of the market during thirty of the best market days will result in a return of -3.07 percent.
That means if you started with $10,000 ten years ago, and stayed out of the market those thirty best market days, your $10,000 would be down to $7,348—a huge loss for not being in the market!
But worse, some investors have missed the whole market uptick by being out of the market more than sixty days of the best market, which caused their $10,000 to be reduced to $3,359 because they moved out of the market and stayed out too long.
It’s easy to get out, but when do you get back in? When do you know there was a good day? After it happens—the next day!
The best strategy is to be continually globally diversified into 13,000 stocks and bonds of companies within more than forty countries, and spread between more than twenty different size companies/asset classes ... and rebalance quarterly! Moving your money could be extremely harmful to your financial wealth. Just be patient; the market will readjust itself automatically, without you doing anything!
Be smart! Stop moving your money once you are globally diversified. Stay disciplined. So simple, but Wall Street does not want you to know this. They make lots of money when your money moves, whether you make money or not!
The best thing you could do to be a successful investor is change your behavior. Being in the market is one of the most important ingredients of investing. Be patient! You’ll be rewarded.
Written by: Maria J. Wordhouse Kuitula and Phyllis J. Veltman Wordhouse, Free Market Wealth & Stewardship Coaches, co-authored the book, Stress-Free Investing, available at Amazon.com. Maria is the President of Wordhouse Wealth Coaching and can be reached at 616-460-6518 or at [email protected]. For QUESTION LISTS and INVESTOR EDUCATION VIDEOS, go to www.WordhouseWealthCoaching.com. © Wordhouse Kuitula 2013. Photo: stock.xchng