An Economic Times article from 2 years ago made the case for spending time in the investment market vs investing for the moment and not thinking long-term. The article explained the simple logic through two insects, an ant and a grasshopper. Ants are known for storing food away for the tough seasons, while grasshoppers are known to weather it out and ‘go with the flow’. In the illustrated story, the ant entered the market at a young age and for a long haul, and kept increasing investments steadily. The grasshopper, on the other hand, did not give his investments enough time to grow and suffered financially in old age.
2020 has been a tough year for all of us, in ways other than financially as well. We have faced salary cuts, job losses, job switches, work from home in isolation, stocks going down, and a number of other problems. If you hadn’t been thinking about investing yet, it is the right time to. If you have already been investing but not holding your investments, this is for you as well. Time in the market is a better strategy to secure your financial future 2021 onwards, as opposed to timing the market or any other short-term investment strategy.
Additional Read: Smart Long-Term Investment Options for 2020
What is time in the market?
Time in the market, or long-term investments would mean different things to different people. The scale varies from as short as 3 years to as long as 10 years. If you ask a share investor, they might tell you that anything above 5 years is long term. The answer depends on your investment style.
In the context of shares, time in the market is basically a strategy that promotes time and patience with your investments rather than selling them quickly. For example, if you hold a stock for 10 years, the benefits of compounding and growth will give you a significant reward. When you spend time in the market, you will ride through all the natural market cycles. It might seem difficult for some, but it will become a smooth ride once you align this strategy with your financial goals. This works perfectly for long-term plans such as buying a house, taking an international trip, children’s wedding, etc.
The strategy often proposed in lieu of long-term investments is timing the market. Let us find out what it means and why it shouldn’t be your priority this New Year.
Additional Read: How can a long-term investment approach help manage a crisis?
What is timing the market?
Timing the market is essentially you trying to make a future prediction. There is known to be a higher possibility of failure and higher risk with this strategy, since there is no way to accurately predict an uncertain market. It is also almost impossible to consistently time the market with success. You may win big with one prediction, and then lose all of it with the next one. It sounds promising to buy a stock and then sell it soon after to earn a profit. However, this strategy is not recommended for long-term wealth creation. Instead of stressing over timing, you can lock in for the long-haul and be at peace.
Does timing the market ever work?
It might work sometimes, and work wonderfully. That is why it is popular. However, the ‘buy low, sell high’ philosophy cannot defeat the nature of the market, which is uncertain in the short run. Plus, timing the market can also have other financial implications. Frequent trading, for example, increases brokerage costs. If you don’t earn a profit, the brokerage is not a cost but a loss for you.
Why has there never been a better time to choose time in the market?
Our long-term wealth is taking a hit, and only long-term investments can salvage it. If you’re considering any long-term goals in the near future such as a house, long term investments are surely the way to go with home loans and other costs continuing for a long time ahead.
Timing the market, or investing for only a short period and then giving it up altogether, is not going to reap any long-term rewards or allow you to plan for retirement. It is only through time in the market that you will be able to create a financially fulfilling life even after your time as an employee. After the scare that the pandemic has given us this year, we all ought to start afresh and look after our long-term financial goals and retirement plans. Download the Moneyfy app today!