There are many risks associated with your money. Inflation risk, equity risk, capital risk and others. However, the greatest risk an investor can take on is market timing.
When assets are moved in the portfolio, based on a forecast or prediction about the future, this is market timing.
For example, you’ve become convinced by economic forecasts that the market is heading down over the next twelve months. You decide to sell your stocks and put all of the money into cash. That is market timing!
Market movements are random. No one knows what the market will do tomorrow or over the next twelve months. It bears saying again: Nobody knows with any degree of certainty what the future will bring and if they did they wouldn’t tell you.
Let’s look at another example. Because of a war, you or your stockbroker predict that international stocks are going to lose big, so you move all of your stocks into the United States. Once again, this is market timing.
This doesn’t “feel” like speculating. It often feels like wise stewardship of your assets.
If over the last two years, you have watched your portfolio take large losses in any one asset category, and every news program, investing magazine and stockbroker says this is the time to get out – it feels like prudent investing. Nothing could be further from the truth.
In many cases, if not most, staying disciplined and staying the course is the best thing to do. That assumes that you currently have a prudent mix of assets. This is a huge assumption, because most people don’t.
To keep you disciplined to your strategy, you will need the guidance of an investor coach/fiduciary advisor. In my opinion, this is where your advisor adds the most value. This is why you pay their fees.
To keep emotions out of your investment decisions. Investing is a long-term process and a true advisor will keep you grounded to your plan.