Market Timing: The Losers Game

by Jeffery A. Keill, CFP, CIM, FMA, FCSI, Portfolio Manager and Senior Wealth Advisor Keill & Associates- Advisory Team

Stocks are meant to be long term investments.

Investors are cautioned not to chase high short- term returns. Re-balancing your portfolio may be in order at times, but it must be done on a sound basis such as a change in market conditions, factors affecting a certain asset class, or a change in your personal investment objectives, risk tolerance, or time horizon.

Studies done by research firm Dalbar Inc. in both the U.S. and Canada show that investment return is far more dependent on investor behavior than on fund behavior. The studies show that investors who practice a buy-and-hold strategy earn higher real returns than those who attempt to time the market constantly switching.

Key findings of the Dalbar Inc. studies illustrate the importance of buying and holding. The studies found that mutual fund investors earn far less than reported returns due to their investing behavior. The 1997 U.S study showed that while the Standard and Poor’s index, a U.S. equity index, returned 17% per year (including re-invested distributions) for the 14 year period from 1984 to 1997, equity fund investors earned real returns of only 6.71% per year. Meanwhile in 1999 Canadian study showed that while the TSE 300 Composite Index returned 11.53% per year (including reinvested distributions) for the period from March 1990 to December 1999, equity fund investors earned real returns of only 7.15% per year.

The gaps between the index return and investor returns are mainly due to the fact that, in an attempt to cash in on the impressive stock market gains, investors jump on the bandwagon too late, and switch in and out of funds trying to time the market. By not remaining invested for the entire period, they do not benefit from the majority of the equity market appreciation.

Many studies back up the theory: what counts is your time in the market, not timing the market.

Studies have shown that Bull markets tend to last much longer then Bear markets. In fact, research shows that markets have risen 70% of the time and have gone down only 30% of the time.

The main danger with market timing is that not only do you have to know exactly when to get into the market, but you also have to choose the correct time to get out of the market.

An often-published study out of the U.S. shows that if you had missed the best 90 market days from 1963 to 1993 you would have dropped the annual return over that period to roughly 3% from 11.8%.

The key to successful investing is to maintain a balanced and diversified portfolio, maintain a long-term outlook, be patient, and don’t try to time the market.

Keill & Associates investment philosophy has always been based on the time-tested truth that successful investing is simply the victory of logic over emotions.

Disclaimer and Notice to Reader: This Discussion Paper should not be construed as legal or tax advice but rather only as a general statement and explanation of the topic matter. Professional tax and legal advice should be obtained for the readers own personal situation. For more information on this topic or how it applies to your family, please contact our Wealth Advisory team.

Last edit Feb 11, 2025