Markets

Green Fisher: “Avoid timing attempts!”

Anyone who left the stock market in the memorable first quarter of 2020 must ask themselves the following question today: When should I get back in? In volatile market phases, many experts recommend the principle “buy cheap, sell expensive” …

Volatile markets are challenging

Anyone who left the stock market in the memorable first quarter of 2020 must ask themselves the following question today: When should I get back in? In volatile market phases, many experts recommend the principle “buy cheap, sell expensive”. That sounds reasonable, but also clichéd – and it is not uncommon for emotional market phases to lead cautious investors to achieve exactly the opposite result. There is also plenty of advice on the right “tactic” for re-entry, including a gradual return to equity markets or simply waiting for a vaccine to make the risks of COVID-19 a little more predictable. However, the crucial question is much simpler: Why are you actually investing?

It’s about the purpose of your investment!

The answer to this simple question should primarily come from your personal investment goals. You want to maintain a certain lifestyle in carefree retirement, simply increase the value of money at an acceptable risk or, if necessary, equip your portfolio with a withdrawal plan. In addition to the specific purpose, the time horizon and the fluctuation tolerance give the direction of how your asset class distribution should look. Whoever strives for long-term growth cannot avoid investing in shares! Isn’t it idle to think far-reaching about timing plans in volatile market phases that occur all the time?

It’s never easy

Unfortunately, the question of optimal re-entry still arises for many investors, because anyone who has exited the stock market has burdened themselves with this difficult decision. It is a great challenge to actually treat stocks in such a way that they develop their maximum benefit – as building blocks for long-term asset growth. In March 2020, investors were put to the test. Market participants with strong nerves also ran the risk of succumbing to their emotions and moving away from their overall plan at an unfavorable time. When the stock markets started to rise again in late March, most did not believe in a sustainable recovery. Many still doubt the stability of the markets and have not benefited much from the current V movement.

It is never “easy” to dare to go back! Anyone who has reached the point as an investor that the markets are currently higher again than at the time of the exit must therefore admit that the timing attempt was unsuccessful. Anyone who dares to get started and is “punished” by further short-term market fluctuations may get out again and make further timing errors. Likewise, investors could judge the current level as “too high” and stubbornly wait for the markets to drop below the exit level again. However, one should not underestimate this: if the markets continue to rise, the opportunity costs will increase relentlessly and the decision to re-enter will become increasingly difficult.

Conclusion

For long-term investors, the motto should always be: Avoid timing attempts as much as possible. The potential for errors is simply too high and the basic investment objectives take a back seat. Save yourself the tedious discussions about the optimal return to work by always putting the question “Why am I investing?” In the foreground.

You can request the current capital market outlook from Grüner Fisher Investments at free of charge.

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