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Timing the Market: Is It Worth It?

Many global equity markets hit record highs in late 2017, and many investors were concerned that equities were overvalued. Just yesterday, I was discussing with my friend how I regretted not buying more Singapore banking stocks earlier in 2017. He laughed and said if I were indeed clairvoyant, I would be working in a big American multinational finance firm. Interestingly, his follow-up question was, “So do you think Singapore banking stocks are overvalued now? Can I still enter?”

Well, the answer to such questions depends on why you are buying them. Are you trading or are you investing? The fact is, equities have consistently outperformed other asset classes in the long run. The Straits Times Index (SGX: ^STI) has been making record highs now and then since its inception. If you are an investor, and you believe in a company’s business and its ability to thrive in the long run, trying to time your entry is a fool’s errand. You would be better off buying the company’s shares right away.

An interesting piece of research was done by Vanguard back in 2012 looking into over 30 years of market data from the US, UK and Australia. It concluded that historically, a long-term upward trend has always persisted for both equities and bonds. Another study conducted by an US-based brokerage firm came to the same conclusion – a 20-year holding period in the S&P 500 index has never produced a negative return.

I always thought Burton Malkiel made a great point on timing the market back in a Bloomberg interview in 2016. Essentially, he said that when you try to time the market, you have to be correct twice; you need to know when to get in and when to get out. Very few people, even industry experts, can time the market consistently across long periods of time. This explains the flow of money from mutual funds and hedge funds to exchange-traded funds in recent years.

Still, as we all know, be it in investing or life, it can be difficult reconciling our feelings and reality. The fact is time in the market beats trying to time the market hands down.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice.