Have you ever dreamed of being that one in a million investor who has the talent to perfectly time the markets?
In fact, even among long-term investors who don't attempt to time the markets, being able to call the top of the market is a skill that many think they possess. This misguided confidence is often driving investors to sit on the sidelines and wait it out for better market opportunities.
Missed investing opportunities by exiting at the first sign of trouble is a common pattern among many self-directed investors. Case in point: How many investors have missed huge opportunities waiting for the Aerospace stocks listed below to correct, only to see them reach new highs, climb higher and drive the bull market to record levels: Air Industries Group (AIRI), AAR Corp. (AIR), The Boeing Company (BA), AeroVironment, Inc. (AVAV), Astronics Corporation (ATRO)
Dread and exuberance regularly propel investors into merely 'reacting' to market volatility, rather than envisioning market trends.
Successful market timing requires three key ingredients: 1) A reliable signal to tell you when to get in and out of stocks (or bonds, gold or other types of investments). 2) The ability to interpret the signal correctly. 3) The discipline to act on it.
Many investors believe that market timing is a short-term investment strategy. There is a less known, more effective, longer-term market timing approach that has been used successfully by astute investors like Warren Buffet.
Rule 1: Why trying to time the tops and bottoms of the market is a dead end.
Forget tracking for market tops or bottoms to expand your odds for success with a longer timeline and give yourself the flexibility to eventually profit, regardless of whether your calls are spot-on or way off-base.
Rule 2: Try not to sell amid little crashes - instead exploit the opportunity by buying.
Warren Buffett has made an incredible piece of his fortune because of this basic standard. He cautions not to sell during little crashes, and encourages enduring them by concentrating on the long haul.
There is a key distinction between a small correction and a market crash. If the companies you own are established and successful, they are likely to return to their pre - crash price before long, making holding on the wisest decision. Warren Buffett takes this idea further by frequently going on purchasing binges when the markets turn, basically purchasing extra shares of his top stock picks at a major markdown and doubling - down on his very own recommendations.
A Risk Adjusted Trading Strategy Should be Followed for Your Retirement Assets
It's just human that many surrender to emotions and attempt and game the framework by timing the market. But, think about this: Nobel Laureate William Sharpe found in 1975 that a market timer would need to be precise 74% of the time to beat a passive portfolio. Even a slight outperformance probably wouldn't be worth the energy - and given that even the experts generally fail at it, market timing shouldn't be your exclusive investing strategy of choice, especially using assets earmarked for your retirement.
Actively trading for alpha, outsized, short - term gains through market timing and other high - risk trading strategies is fine with a small portion of your investable assets, but for your longer - term retirement assets, a risk -adjusted focused investment solution generally makes more sense.
If you'd like to learn how to 'super-charge' your retirement assets, get our free report:
Will You Retire as a Multi-Millionaire? 7 Things You Can Do Now.
This report can help you maximize your retirement nest-egg without the high risk of attempting to successfully time the markets. Click here for free report>>
Air Industries Group (AIRI) : Free Stock Analysis Report
The Boeing Company (BA) : Free Stock Analysis Report
Astronics Corporation (ATRO) : Free Stock Analysis Report
AeroVironment, Inc. (AVAV) : Free Stock Analysis Report
AAR Corp. (AIR) : Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research