"Money File"-Timing Is Everything
Wednesday, August 22, 2007SUSIE GHARIB: In the "money file" tonight, the pitfalls of market timing. Here`s Jonathan Pond, author of "You Can Do It! The Boomer`s Guide to a Great Retirement."
JONATHAN POND, AUTHOR, "YOU CAN DO IT! THE BOOMER`S GUIDE TO A GREAT RETIREMENT": The golden rule of investing is thou canst not predict the markets. The allure of market timing is certainly understandable. Long bull markets make investors skittish. Quick market downturns, like the one that spoiled our summer, scare everyone. The notion that you can actually get out of the market just before it takes a dip, and then get back into the market just before it rebounds is terribly attractive.
The major challenge in trying to time the stock market is not so much getting out of the market before it drops as it is deciding when to get back in. Some investors do manage to get out in time, but more often they get out in anticipation of a drop that doesn’t arise. But the real challenge is reinvesting your cash at the moment the market begins to rise from the ashes. Usually, stock prices surge quickly after a drop and the jump occurs when gloom and doom permeate Wall Street and Main Street.
Recognizing that you`ll never be able to predict the near-term performance of the investment markets is liberating. Then you can confidently devise a diversified investment strategy and stick with it, even when you`ve lost money and the Wall Street pundits are spewing nothing but awful forecasts for stocks or bonds or both.
Keep investing using the power of dollar-cost averaging, periodically rebalance your holdings and resist the temptation to make major shifts in your investments. These have always been the keys to long-term investment success. I`m Jonathan Pond.
