Investing fundamentals #4 – Don’t try to time the markets

In the fourth in a series of weekly blogs about the ten fundamentals of investing, I explain why investors should not attempt to time the markets.

When it comes to investing, the time you spend ‘in the market’ is far more important than the specific times you enter and exit the market.

Trying to time your entry to and exit from investment markets is rarely a good idea because of the risk of getting it wrong.

Rather than investing when markets are low and selling out when markets are high, you stand a good chance of buying at the high points and selling at the low points.

Missing out on just a few of the best days of market performance can have a dramatic impact on the overall performance of your investment returns.

Some research from Fidelity found that, during the ten years to October 2010, £1,000 invested in the FTSE All Share index would have grown to £1,330.  This return would have fallen to £720 if you missed the ten best days of market performance or to just £475 if you missed the best 20 days.

It’s an unfortunate fact that investors tend to buy when stocks are doing well and sell when they are doing badly. Attempting to time the markets is best left to full-time professional investors who are able to spend every day scrutinising the price movements of a handful of stocks.

For retail investors with a diversified portfolio of funds, timing the market is rarely advisable or indeed necessary; in fact it can often damage your wealth as you miss the best returns, buy and sell at the wrong times, and incur additional trading expenses.

Read about all ten investing fundamentals by downloading our free guide:

The Investing Fundamentals Guide 2014