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Market Timing
The strategy of getting in and out of the markets in time to miss declines and participate in the gains. While the theory is simple, the execution is virtually impossible over the long term. Even if you sell stocks in time to miss a significant decline, you still have to time your re-entry correctly. The very nature of markets is that they are unpredictable, and historically they have often experienced very swift rebounds after a “bear” market. As individual investors have typically invested more money near market peaks, and far less at market bottoms, the average investor’s track record in market timing is not encouraging. Consider that Dalbar Inc.’s 2008 “Quantitative Analysis of Investment Behavior” shows that in the 20 years ending on December 31, 2007, the average stock mutual fund investor earned only 4.48%, vs. 11.81% for the S&P 500 (large U.S. company index).
With a $10,000 initial investment, that translates to the difference between having about $24,000 instead of $93,000 twenty years later. (Note that you cannot invest directly in an index, but you could achieve similar results with an index fund.)
Clarity Investments + Planning LLC does not utilize market timing.
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