Momentum - Business to Business Online Magazine MOMENTUM January 2020 | Page 34

FINANCIAL FOCUS
KRISTI TREVINO
Financial Advisor
Edward Jones
www.edwardjones.com/kristi-trevino
IS MARKET TIMING A SMART
INVESTMENT STRATEGY?
Y
ou may have heard that timing is everything.
And in many walks of life, that may be true –
but not necessarily when it comes to investing.
To understand why this is so, let’s look at
three common mistakes investors make:
• Selling investments and moving to cash when stocks
are predicted to drop – If you follow the financial news
on cable TV or the internet, you’re eventually bound to
discover some “experts” who are predicting imminent,
huge drops in the stock market. And on rare occasions,
they may be right – but often they’re not. And if you
were to sell some of your stocks or stock-based
investments based on a prediction and move the
money to cash or a cash equivalent, you could miss
out on possible future growth opportunities if the
predictor was wrong. And the investments you
sold still could have played a valuable part in your
portfolio balance.
• Selling underperforming assets in favor of strong
performers – As an investor, it can be tempting
to unload an investment for one of those “hot”
ones you read about that may have topped one
list or another. Yet there’s no guarantee that
investment will stay on top the next year, or even
perform particularly well. Conversely, your own
underperformers of today could be next year’s
leaders.
• Waiting for today’s risk or uncertainty to disappear
before investing – Investing always involves risk and
uncertainty. Instead of waiting for the perfect time
to invest, you’re better off building a portfolio based
on your goals, risk tolerance and time horizon.
All these mistakes are examples of a risky investment
strategy: trying to “time” the market. If you try to be
a market timer, not only will you end up questioning
your buy/sell decisions, but you also might lose sight of
why you bought certain investments in the first place.
Specifically, you might own stocks or mutual funds
because they are appropriate for your portfolio and your
risk tolerance, and they can help you make progress
toward your long-term financial goals. And these
attributes don’t automatically disappear when the value
of these stocks or funds has dropped, so you could end
up selling investments that could still be doing you some
32
MOMENTUM | 2020 Year of Small Business
good many years into the future.
While trying to time the market is a difficult investment
strategy even for the professionals, it doesn’t mean you
can never take advantage of falling prices. In fact, you
can use periodic dips in the market to buy quality assets
at more attractive prices. Suppose, for example, that you
invested the same amount of money every month into
the same investments. One month, your money could
buy more shares when the price of the investment is
down – meaning you’re automatically a savvy enough
investor to take advantage of price drops. While your
money will buy fewer shares when the price of the
investment is up, your overall investment holdings will
benefit from the increase in price.
Buying low and selling high sounds like a thrilling
way to invest. But in the long run, you’re better off by
following a consistent investment strategy and taking
a long-term perspective. It’s time in the market, rather
than timing the market, that helps keep portfolio returns
moving in the right direction over time.
This article was written by Edward Jones for use by
your local Edward Jones Financial Advisor.