With this post, I am going to move into the realms of some radical financial advice thinking. That’s right, it is time to challenge some of the so-called golden rules of investing and what better axiom to start with than the ‘numero uno’ of investment sayings – “it’s the time in the markets, not timing the markets.”
This particular phrase is used by advisors and so-called pundits to demonstrate that investing can be done at any time. Trying to pick tops and bottoms of markets is near to impossible and so it is fruit- less to even attempt to time the market. It is also often used as a form of a verbal salve, to be applied to a nervous investor in order to calm their ire during periods of volatility.
The phrase is usually accompanied by the additional “and I can assure you, over time, the market will certainly move higher, so don’t worry” dutifully recited to dispel any remaining investor uncertainty.
So what is the problem? Well, the “time in” phrase represents a type of quasi-advice that sounds good but actually means nothing. It’s more like an advertising slogan than scholarship. Take, for example, some global market indices.
Japan’s Nikkei index; in 1990 it was just under 40,000 – today, the same index languishes at 16,600. So over a 26 year period, the Japanese market has not even reached 50% of its 1990 value. How much time do I need to invest?
What about the Australian market? In 2007 the index hit 6,754 currently it sits at 6,000, some 10 years later. If you had invested in an index fund back then, you would still be under water.
Examine a chart of the gold price. The boom price of the 80’s is still to be reached, and that is 35 years later. You certainly wouldn’t want to be holding a non-income producing asset for that long without reward.
Investment markets, whether they are property, shares or cash, have a distinctly cyclical nature, and it certainly doesn’t require the services of Nostradamus, to determine when a suitable entry point is present or not. Rather it’s a simple analysis of the current market environment.
And ‘timing’ is most certainly not about picking the top, or bottom of a market, that is impossible. Unfortunately, this seems to be the definition most commonly attributed to it. Rather it is the un- derstanding and acknowledgment of when it’s a reasonable time to invest and just as important when it is not.
Unfortunately, the advice industry is sometimes more in a hurry to secure your investment funds rather than apply sound investing principles.
We will have more on this subject in the future, stay tuned.
Thanks for reading and see you next time. Homepage
