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Time in the market versus timing the market.
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Sounds similar, but are very different strategies to invest your money.
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This episode of BlackRock Basics is going to answer the age-old question;
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Does time in the market beat timing the market?
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So grab something to drink, maybe a little snack,
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and let's get into it!
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Timing the market means trying to identify exactly
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when to buy stocks, bonds or other assets,
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and when to sell them.
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If you're able to buy at the lowest price
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and sell at the highest price,
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you should in theory be able to maximise your investment returns.
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This sounds ideal,
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but in reality, it's super difficult to know when the price of a stock
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or a bond has reached its cheapest level and is about to rise,
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or when it's reached its highest level and is about to fall.
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It's really tough to achieve this once,
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and almost impossible to do it consistently over the long-term.
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So, if trying to time the market is proving difficult,
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what other options do you have?
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Time in the market is all about keeping money invested over the long-term,
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and not about trying to buy low and sell high.
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History shows us that this can result in better returns
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and lower the risk of investing a lump sum of money
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just before markets fall.
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Investing a consistent amount on a regular basis is a popular strategy
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used by investors who want to grow their money over the long-term
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and reduce the risk of timing an investment incorrectly.
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One of the easiest ways to achieve this is by drip feeding your investments.
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Instead of parting ways with a lump sum,
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you can opt to automatically invest a set amount of money each month.
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Not only does this eliminate guesswork
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involved in deciding when to invest,
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it should also help you ride out the market highs and lows,
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allowing for a smoother journey.
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I want to do things a little differently in this episode,
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and use one of our famous analogies to bring us home.
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So imagine you're on a treasure hunt on a desert island.
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And you're presented with two choices to find said treasure.
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Option one. You can try to predict exactly where the treasure is buried
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and dig in that spot,
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given the knowledge you have of its supposed location.
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But a sandstorm changes the beach layout
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and now everything is changed.
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How will you find the treasure now?
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This is like timing the market.
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You're making an educated guess
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in the hopes of striking gold immediately.
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But other forces you could have not predicted
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have shattered your dreams.
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Or option two.
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You can explore the entire island,
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digging in different spots over a longer period.
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This is like time in the market.
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You're consistently searching and giving yourselves more opportunities
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to find the treasure and weather storms.
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So, how would you go about it?
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This analogy is a great way to showcase
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why time in the market beats timing the market.
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In the same way that searching for the treasure
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presented unpredictable challenges, so too can the market.
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By exploring the island and digging in several areas,
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you increase your chances of potentially finding the treasure,
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even if it takes time, no matter what is thrown at you.
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So instead of worrying about finding the perfect spot to dig,
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why not enjoy the hunt and hopefully
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let time lead you to the treasure.
