Thread: To time or not to time
1/8 Timing the market has financial & psychological aspects. The financial benefit from timing the market is minimal if you have a 10+ year horizon. The advice to ignore market fluctuation is based on that point, but misses the psychological part

2/8 The psychological component of timing the market plays a bigger role as the long term is eventually a series of short terms. One needs to sustain through the short-term swings to benefit from the long term. Feelings of loss or greed is what derails most investors

3/8 We are expected to behave like Zen monks and ignore market fluctuations. Simple in theory, but impossible in practice. The other option is to ‘buy’ some magic timing formulae or invest with someone who has the secret. Problem is that no one can time the market ‘consistently’

4/8 There is a proven way to get around the problem of market timing. It is known by everyone but practiced by few. It has three components – Diversification, Asset allocation and Periodic rebalancing

5/8 Diversification means that one invests across different asset classes such as equity, debt, real estate, gold etc. Diversification has rightfully been called the only free lunch in the market and there is a body of empirical evidence to back it up

6/8 Asset allocation means figuring out how much to allocate to each asset class based on your age, income, risk tolerance etc. Periodic rebalancing means that you sell what has appreciated above the planned percentage and invest in another Asset class which has underperformed

7/8 Rebalance the portfolio once a quarter or yearly and you don’t have to worry about timing the market.

8/8 If you follow these three components, you will do better than 95% of investors with 100% less stress. If you cannot do it yourself, find a good financial advisor. Will be worth the fees you pay him. Just in case you think I am selling something – I don’t provide this service