When markets have had a strong run, we often hear from clients who wonder when the tide might turn and what that would mean for their investments. EquityThe amount of money that would be returned to shareholders if a company’s assets were sold off and all its debt repaid. Research Analyst Kate Austin discussed the risksThe probability that an investment will decline in value in the short term, along with the magnitude of that decline. Stocks are often considered riskier than bonds because they have a higher probability of losing money, and they tend to lose more than bonds when they do decline. in attempting to time the market in our recent quarterly webinar*—Take Your Pick: Recession or Recovery?
Please enjoy the excerpt below and click here for the full webinar replay to hear more.
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Kate Austin: When’s a downturn coming? This is a question that irks many investors.
Unfortunately, very few of us can pinpoint when the market will fall. And many people have made very bad bets and ruined some careers when they thought the market was going to go down and it didn’t. So the best advice that we can give to you is: Your overall time in the market matters much more than trying to time a good entry or exit point.
This is supported by the data, too, because if you look at daily historical returns for the S&P 500 over the last 20 years, and you take out only the 10 best-performing days, your return is actually cut in half. Yeah, that’s right. Half. Nuts, right?
It’s really hard to try and time the market because you have to be right on both ends. Not only on the entry point, but also on the exit points. And this data shows that, really, over the long run, you’re better off just staying invested in the market.
Now, if you’re only concerned about the entry point, you can do something that we call “dollar-cost averaging.” You take whatever chunk of money that you want to invest, split it up into three or four chunks and be judicious about putting a chunk to work on, say, the first of every month. This can help you take advantage of some of the market’s fluctuations and split up your riskThe probability that an investment will decline in value in the short term, along with the magnitude of that decline. Stocks are often considered riskier than bonds because they have a higher probability of losing money, and they tend to lose more than bonds when they do decline. a little bit so you’re not putting everything in all at once.
*Webinar recorded after the market closed on Wednesday, July 22, 2020.
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