Time in the Market Is Better than Trying to Time It
By Saghir Aslam
Rawalpindi, Pakistan
(The following information is provided solely to educate the Muslim community about investing and financial planning. It is hoped that the Ummah will benefit from this effort through greater financial empowerment, enabling the community to live in security and dignity and fulfill their religious and moral obligations towards charitable activities)
Given the volatile conditions local and world markers have experienced over the past few months, matter of fact since the dot com day’s markets have fluctuated a lot, some people refer to it as YOHU, YOHU. It has understandably made a lot of investors cautious about their portfolios, and may be considering making changes or selling investments.
Taking a step back for a second, for most investors whether just starting out or trying to get back on track, the old adage is true-“failing to plan is planning to fail”. So having taken the trouble to start planning, investors may panic when markets fall in value and potentially sell their investments at the worst possible time.
If you are having these thoughts, it is a good time to remember why you started saving. It is for your first home or wanting early retirement? Have your plans for these events changed? If not then why change your saving plan due to market movements?
The financial plan will be different for every person as it depends on your goals and dreams. But generally, an investing plan uses a disciplined approach that will allow you to accumulate the money you need over your life time to reach your desired goals. There will always be trade- offs for every one depending on specific circumstances of life now and in future. The Important thing is to have not just a wish and a hope your dream might one day become reality but to have a plan that outlines the steps needed to achieve those goals.
More Opportunities
So armed with your long-term plan, what comes next? To put it simply, long term investing. Thinking long term opens up a lot more opportunities for investors. Trying to reach long- term goals like retirement in one year is likely to leave you frustrated. Recognizing that you must start saving as early as possible and understanding that it takes time to accumulate money is one of the best time to begin creating your plan and for many people starting actually means you are already half way to reaching your goals.
Unfortunately, many investor try to time the markets. Timing the market is not long-term investment strategy that tries to take advantages of dips in the market. The problem with this strategy is that by focusing on just when to invest it’s easy to ignore your long term objectives and make investments you normally wouldn’t – essentially it diverts your attention from where it should be.
One of the oldest company that I know or what was specialization in timings the marked is out of business. When they were in business. I had the manager and small part of my portfolio, let me share with you results were not great.
Average annual return
So let’s look at long period of time and the effects it can hove on investing. Thirty years equal about 11,000 days. One might assume that eliminating a few of those days would have little impact on investment performance during that time. Yet if the ten best days of the S&p500 Index (the top 500 companies quoted on the USA stock market) for the period 1983-2013 are excluded, the average annual return drops from 8.40 per cent to 5.80 percent. If the 20 best days are excluded, the average annual returns drops to 4.09 percent. So missing 20 days over 11,000 can halve your returns.
If individual days can effects performance so dramatically, then why not be in the market for good ones and out for the bad ones? Far easier said than done. Such a short- term perspective can harm performance and jeopardize your long – term financial goals.
Another common tactic during period of market volatilely and uncertainly is to park long – term assets in cash investments. While waiting on the sidelines can sometimes seem the prudent strategy, it comes at a cost. Money market accounts may be less volatile than stocks and bonds, but they also offer little opportunity for growth and income. So, be brave, remember why you are investing, review regularly, and keep the long – term plan in mind.
(Saghir A. Aslam only explains strategies and formulas that he has been using. He is merely providing information, and NO ADVICE is given. Mr Aslam does not endorse or recommend any broker, brokerage firm, or any investment at all, nor does he suggest that anyone will earn a profit when or if they purchase stocks, bonds or any other investments. All stocks or investment vehicles mentioned are for illustrative purposes only. Mr Aslam is not an attorney, accountant, real estate broker, stockbroker, investment advisor, or certified financial planner. Mr Aslam does not have anything for sale.)
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