Time in the Market V/S Timing the Market


  • Time in Market or Timing Market - Which Investment Strategy Should You Follow?
  • Time in market means buying quality stocks and holding them for a long term, reducing the risk of losing money
  • Timing the market means entering & exiting based on guesses that may not prove right

A perfect investor is the one who can buy a stock at its lowest price level and sell at its highest price level. This perfect investor is a myth. Time plays a very vital role in choosing an investment strategy. Fluctuating markets reflect promising returns and many of us get attracted by short-term numbers showing high gains. In the short term, markets are generally volatile, while in the long run, investments exhibit stable behavior and deliver consistent returns.

The market moves in mostly unpredictable ways in the short run, but in the long run, there is much more predictability. Before investing hard-earned funds, one needs to understand the working of markets and the risks associated with investing, which is not easily possible with short-term investments. Investment objective might differ from person to person, but every one intends to get good returns.

What is Market Timing?

Market timing is an investing strategy in which the investor tries to identify the best times to enter and exit the market. This can result in higher returns than other strategies. However, there are risks involved. Changes in a market trend can appear suddenly and almost randomly, making the risk of misjudgment significant. Regular evaluations are necessary as this strategy involves active monitoring of funds invested. Timing the market requires many, many correct guesses – when to get in, when to get out, when to go back in again and it is a continuous process. The probability of making correct guesses most of the time is quite low.

Many investors and financial professionals believe it is impossible to time the market. Whereas other investors, mainly active traders, believe strongly in it. Thus, whether market timing is possible is a matter of opinion. What can be said with certainty is that it is very difficult to time the market consistently over the long run successfully.

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Why Timing the Market is a Bad Idea?

  • Probability of Failure is High
  • Consistency is guessing correct every time is impossible
  • Multiple transaction Cost and higher taxation
  • Requires daily attention to monitor investments

What is Time in the Market ?

This investment strategy is also called Buy and Hold investing. Buy and hold, however, doesn’t mean ignoring your investments. Here, the investor focuses on buying quality stocks and holding it for a longer term. Here, the investor intends to pick a good stock at fair valuation rather than an average stock with a great valuation. The longer you stay invested, lower is the risk of losing funds. Long-term investments ensure consistency as against speculative gains. Successful investors base their actions on deep research rather than random market ups and downs. However, it is advised that you monitor your investments regularly.

The Bottom Line

Clearly, time can be a better ally than timing. The best approach to your portfolio is to arm yourself with all the necessary information, and then take your questions to a financial advisor to help you with the final decision making. Markets have proven time and again that passive, long-term (20 years or more) investing without any attempt to time the market would be the superior choice.

Above all, remember that both your long- and short-term investment decisions should be based on your financial needs and your ability to accept the risks that go along with each investment. Your financial adviser can help you determine which investments may be right for you.

The writer of this post is Mr Nimit Rai Singh, he is a team leader in Mutual Funds division at Wishfin

Disclaimer – “Mutual fund investments are subject to market risks. Please read the scheme document carefully before iesting”.

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