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What is Market Timing?
Market timing is the process of making an attempt to find the best time to enter or exit the market. Investors who practice market timing attempt to buy high and sell low in the market. This is the approach that is taken by investors in the market with the aim of making decisions on the future direction of the market.
The Risks of Market Timing
However, market timing can be risky because it is very hard to predict the market directions. The stock market is influenced by a number of factors that include the level of economy, company earnings and the level of geopolitical stability. Since these factors are not constant, they can change at one point and in a way that may be not expected by the investors, even those who are experienced. Also, for one to practice market timing, there is a need to trade frequently, which comes with high costs. These costs can reduce the investor’s returns and make it harder to get a positive result.
The Benefits of Long-Term Investing
In contrast to market timing, long-term investing is buying and holding stocks for an extended period of time regardless of the short-term market movements. This style is based on the theory that the stock market always rises and that by holding onto stocks for an extended period of time, investors can capture these gains. Long-term investing also has the benefit of lowering the overall costs of the transaction since there are fewer transactions made. This means that more of an investor’s returns are kept than used to pay for the transaction costs.
Conclusion about Market Timing
Although it may seem that market timing is a good way to increase the return, it is crucial to understand the risks and problems that are inherent in it. On the other hand, investing for the long-term can be a better way to achieve results that are desirable because it allows investors to take advantage of the general positive trend in the market and reduce the costs of transactions.
