Trying To Time the Markets
Volatility is inevitable and a normal part of equity investing. But the problem is that many investors get rattled by short-term swings, which leads to hasty knee-jerk reactions. Volatility works both ways: people can get baited into a market rally out of fear of missing out or can panic sell during a market sell-off. Either way, changes to a portfolio allocation because of market movements are rarely a good idea. If you change your asset allocation, it should be because your goals and/or long-term outlook change. Market timing decisions often lead to suboptimal returns. From January 1, 2004, to December 29, 2023, seven of the 10 best days in the market occurred within two weeks of the 10 worst days. (According to a JP Morgan Asset Management analysis)2 . For investors who knee-jerk sell during steep market declines, there is a good chance they will also miss the upswing. At the end of the day, missing the best days in the market can seriously impact a person’s long-term returns. Trying to time the market is the most obvious way an investor could miss the best days: Source: JP Morgan Asset Management Market Insights report 3
Key Takeaway Overall, market timing works only if short-term movements can be predicted consistently – an outcome we do not think is possible. Instead, we encourage investors to leave emotions out of the equation to make investment decisions based on fundamentals-based, long-term investing strategies.