Time in the Market Vs. Timing the Market: Investment Firm in San Antonio Weighs In

“Time in the market” and “timing the market” may sound like basically the same thing, but they are completely different concepts! While one is a long-term, strategic approach to investing, the other is a risky, emotional strategy that often causes investors stress, disappointment and investment loss.

If the stock market scares you, you’re not alone. Investing in the stock market is a terrifying concept for many people. But it doesn’t need to be!

Stock exchanges and the economy itself tend to repeatedly rise and fall over time based on a number of factors, including investor confidence, consumer outlook and geopolitical influence. Being able to stand back and see the big picture, and to understand the rollercoaster pattern of stock market value charts are vital to develop and maintain a long-term strategy for investing.

How Do You Decide Whether to Time the Market or Spend Time in the Market?

Do you have a crystal ball or another reliable way to predict the future, over and over? If so, great! You will do really well with timing the market, because you’ll be able to predict the outcome of a particular stock and know when to buy (when it’s low, of course) and sell (when it’s high). Your returns will be astronomical!

If, on the other hand, you’re like the majority of people without access to a crystal ball, then time in the market is a more prudent strategy to secure long-term wealth. And the more time you have to invest, the better off you’ll be. Your returns might be more steady than astronomical, but your risk of losing your nest egg will also be a lot lower.

As financial advisors in San Antonio for many years, the team at PAX Financial Group wants to address some of the more common questions we get asked about the stock market. If you have a question that is not addressed here or would like to discuss your situation in more detail, let’s talk! PAX Financial Group is an investment firm in San Antonio that’s ready to help!

Don’t guess when it comes to your financial planning. Schedule a no-obligation conversation with the financial advisors at PAX Financial Group.

Timing the Market

Timing the market is sometimes known as “beating” or “outsmarting” the market. It’s a gamble. When you try to time the market, you essentially make a bet that a stock you buy now will quickly increase in value, and you can sell it at its highest value for the greatest return.

Most investors who try to time the market use past cycles and other indicators to gauge stock price fluctuations when deciding to buy or sell. However, even armed with history and data, these investors are still guessing or making assumptions about what a stock will do.

There is a pretty significant amount of risk involved because, well, it’s impossible to actually predict the future with any accuracy or consistency, and in many cases, the value of a stock is as likely to fall as it is to rise, in which case you potentially won’t reap tenfold rewards, and you could even lose your investment altogether.

Time in the Market

Time in the market, on the other hand, is a long-term approach to investing, in which you buy a stock and hold onto it for a length of time, weathering market ebbs and flows. When it comes to stocks and investing, patience can pay off. Focusing on your long-term goals is key, opposed to reacting to market performance.

Also known as the “buy and hold strategy,” time in the market involves less risk than timing the market. History shows that, even though there are likely to be many ups and downs, the cyclical effects of the market are usually rewarding in the form of consistent returns, and with time, comes the added benefits of compounding and investment growth.

Why Time in the Market is a Better Overall Strategy

While it’s possible for any stock to potentially hit it big or take a huge loss, the more years your money spends invested in the stock market, the more time you have to ride the waves that are the natural cycles of the market – and experience steady returns. Longer time in the market allows you to address long-term goals and gives your money a chance to grow.

This can be difficult, watching your portfolio lose value on paper. If it’s making you lose sleep at night, talk with your financial advisor. Review your risk tolerance, remember your ultimate goals and update your portfolio if needed. Whatever you do, don’t guess or make decisions about your financial future that are rooted in emotion and fear. Read our recent blog post: Investing Seem Easy? Exciting? Fun? 5 Challenges to Getting it Right.

Trying to time the market can result in actual losses, both in value and by missing out on potential market rebounds. Take 2020 for example. The early part of the year, at the onset of the global COVID-19 pandemic, saw economies falter and stocks and indices plummet. An investor focused on the short-term might have gotten nervous and sold stocks before their values tumbled further. But those taking a more long-term approach who held steady, enjoyed an above-average year. Between the lowest point on March 23 and the end of the year, the market bounced back to record highs.

Timing the market can also be costly in terms of commission costs and trading fees. Frequent trading to try to time the market and keep up with the rapidly changing prices of stocks could easily put a significant dent in any investment returns you do make.

No One Can Time the Market Perfectly

Anyone can get lucky with an investment once or twice, but luck shouldn’t be your investment strategy! And it’s definitely not something you can control or repeat consistently. Be wary of any financial advisor who claims to be able to time the market – investment firms cannot predict the future any better than you can. What a financial advisor can bring to the table is reassurance, support, knowledge, experience and investment strategies you may not have considered on your own. A good financial advisor should encourage you to seek steady growth over time, and remember your financial goals, as opposed to risking it all chasing greater returns.

If you have questions about your investment strategy, contact the team at PAX Financial Group. Our financial advisors have more than 100 years of combined experience and are passionate about helping you live the life of your dreams. Locally owned and independent, our investment firm headquartered in San Antonio, TX is deeply committed to helping you achieve your vision of financial success. We offer holistic financial assessments, investment management and insurance all in one place. For more on what this looks like, let’s talk!

This material is provided by PAX Financial Group, LLC. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. The information herein has been derived from sources believed to be accurate. Please note: Investing involves risk, and past performance is no guarantee of future results. Investments will fluctuate and when redeemed may be worth more or less than when originally invested. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All market indices discussed are unmanaged and are not illustrative of any particular investment. Indices do not incur management fees, costs and expenses, and cannot be invested into directly. All economic and performance data is historical and not indicative of future results.

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