Basics     Money Myths

“Time in the market beats timing the market.”

POSTED ON JUNE 28, 2021    

The myth

Staying invested for a long time has led a great many people to having a successful investing journey. Doing it properly is relatively easy, as compared to the complexity of finding the right time to buy and sell an asset.


That’s why many people believe that time in the market beats timing the market.


Why do people believe it?

There are several advantages to long-term investing. For one, it allows you to weather any drops that happen as part of the normal market cycle. Plus, since markets (especially the stock market) generally go up over time, you’re likely to end up with good returns this way.


Another advantage is its relative simplicity. Aside from holding on to your investments, consistently adding money to them, putting money in new companies or stocks, and reinvesting your returns and dividends will all help increase your chances of success.


Don’t forget that time is a major part of the formula to determine how much you could possibly earn through investing (Interest = Principal x Rate x Time). So, even if your capital is small and the rate of return is long, you’ll probably end up with a good figure as long as you’ve kept your money invested for a good amount of time.


Also, long-term investing requires a lot of patience but isn’t usually a very time-consuming or stressful process since you won’t be worried so much about the timing.


Risks of believing this myth

In comparison to the profit you might get by timing the market correctly, your potential gains from long-term investing will probably be smaller. However, these slow but steady gains can accumulate over time and aren’t as vulnerable to a single unforeseen event that could wipe out a big portion of your investment’s value.


Also, if you practice peso-cost averaging while staying invested for a long time, you’re almost certain to be able to buy when the price is low, without running the risk of investing all your money at a time when the price is high.


As the name suggests, timing the market is all about making the right move at the right moment. Done properly, you might make a big profit fairly quickly.


However, getting the timing right is very difficult. After getting a lot of information on both the market and the investment product, you’ll have to make a correct analysis that will lead you to the right forecast of when to put money in an investment and when take it out.


This is difficult for even experts to do consistently.


Verdict: It depends (but mostly true).

While the growth that you get through long-term investing will probably be slow and steady, the chances of it succeeding are higher than if you try to find the best occasion to buy and sell through timing the market.


If you’re not comfortable taking big risks in exchange for the chance of getting large profit in a short amount of time, then keeping your investment long in the market, practicing peso-cost averaging and reinvesting your returns will likely be the better strategy for you.

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