Back

To Invest or Not To Invest? That is NOT the Question!

November 26, 2012

A big reason why timing the market is difficult is because we are trying to live and die on one bet. Instead of deciding when to invest in a single asset class, investors can minimize the need to play the timing game altogether by taking the simple first step of starting from balance.
-Matt Scales, vice president of strategic solutions, Columbia Management

The question that many investors continue to ask is, “Should I be buying stocks now or not?” This is the question investors trying to time the market ask themselves every day. If they choose not to be in the market, they may idle in cash as their neutral position until they figure out when to get back in. However timing the market is a very difficult game, even for the most accomplished investors. It is excessively rare to find anyone with the skill to do it consistently. And sitting in cash as a long-term strategy is also a losing proposition. As an investor, do you have the confidence to make the decision between the market and cash on a consistent basis? Going down the timing path represents a shift in mentality from that of an investor to that of a trader. In our view, being a successful trader is a full time job.

A big reason why timing the market is difficult is because we are trying to live and die on one bet. Instead of deciding when to invest in a single asset class, investors can minimize the need to play the timing game altogether by taking the simple first step of starting from balance. In our August 27 Perspectives, we introduced the concept of looking at your portfolio from a risk perspective (with risk being defined as volatility). We demonstrated that balancing risk to asset classes that respond independently to different economic and market drivers may help smooth out your return experience. By spreading the risk

around, you can avoid the potential pitfalls of trying to bet on the one asset class that will go up the most when your conviction to make that call may be absent.

 

View pdf

¦
Advertisement