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Which is a Better Strategy, Timing the Market or Time in the Market?

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The Indian stock market has a reputation for its twists and turns driven by policy shifts, political drama, and global influences. This constant state of flux always leaves investor dabbling with questions like: should they try to outsmart the market by timing their moves, or is it wiser to simply ride the waves and let time do the heavy lifting?

In this article, we will carefully evaluate the various aspects of timing the market vs time in the market. 

Understanding Market Timing

Let’s start with the market timing approach that usually revolves around speculative decisions. Following this approach, investors rely on reading the market trends to make instant purchase or sale decisions in the stock market.

While many argue that market timing is not an ideal approach as it lacks fundamental reasoning and is inefficient in beating market fluctuations, many continue to rely on this for their investments. 

Understanding Time in the Market

Time in the market talks about investments made not only financially but mentally as it requires the investor to stay invested in the security for a long period of time. Time in the market approach is considered reliable as it helps an investor stay at peace and away from panic decisions. 

Under this approach, the investor does not touch the security unless:

  • The initial reason to purchase the security has changed, or

  • The investor has achieved their goal. 

Why Do Stock Markets Move Upwards?

Now, being in the stock market a question that often pops up in our heads is what makes the stock market move upwards? 

Let’s take a look at some of the reasons that stay consistent every time the market moves upwards:

  • Rise in Demand

The stock market functions on a simple supply and demand chain. When the demand for assets goes up the prices go up. 

  • Increased Earning Capacity

The ability of an asset class to earn more pushes the stock market to move upwards as investors are willing to enter with huge pockets. 

Time, Market Timing, and All-Time Highs 

Now that you have gained a fair share of information on timing the market vs time in the market, let’s move ahead with the next big question. What is the right time to invest? 

On average, investors find it challenging to enter the market during all-time highs because of the fear of these highs being a rare occurrence and they tend to wait for corrections. 

However, looking at the data over tha past two decades, it is safe to say that all-time highs are anything but a rare occurrence.

Let’s take the example of Nifty 50 between the years 2000 to 2022. The stock market has hit a new high in nearly every five months thus pushing the profitability to an unpredictable extent. Infact, since 2013 there have been new highs every year excluding 2016. 

While choosing the time to invest your money is a personal call, remember that with businesses making profits the stock market is meant to show new highs in the coming years, as well. 

Top 3 Reasons Time In the Market Is Better Than Market Timing

The advantages of choosing time in the market over market timing have been discussed time and again. 

Take a look at these three reasons that will get you on board to follow time in the market approach:

  • Unpredictable Nature of Stocks

Predicting the movement of stocks requires extreme due diligence and for you to be on your feet at all times. Unfortunately, even acquiring these skills can not promise an accurate prediction of stock movements. Additionally, market timing demands you to search “market timings today” a hundred times in a day. 

  • Short-Term Underperformance

Short-term underperformance is a common phenomenon even with proficiently managed funds.

  • Effect of Transaction Cost

Investors engaged with the market timing approach tend to overlook the transaction cost of frequently selling and purchasing stocks that over time accumulate into a huge amount. 

Conclusion

Stock market movements are hard to predict and even though market timing can help in certain specific situations, for a relaxed investment experience and to gain steady profit time in the market approach is arguably a smarter choice.

As Kaustubh Belapurkar, CFA and Director and Melvyn Santarita Analyst said, “Over the long haul, the stock market outperformance over cash boils down to just a few critical months. Miss those months and you will have missed all the risk premium to be earned from holding a volatile asset such as equities." 

Disclaimer: Investments in the securities market are subject to market risk, read all related documents carefully before investing.

This content is for educational purposes only. Securities quoted are exemplary and not recommendatory.

For All Disclaimers Click Here: https://bit.ly/3Tcsfuc

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Frequently Asked Questions

What is the difference between timing the market and time in the market data?

Answer Field

Timing the market vs time in the market can be best understood by looking at data. Let’s say you invested ₹1 lakh in Nifty 50 in 2003, if you stayed committed you would have created a corpus of nearly 23 lakhs by 2023. If, by following market timing approach, you missed even 20 best days your corpus by 2023 can come down to ₹11.4lakhs.

What is market timing and how is it risky?

Answer Field

Market timing is considered risky for multiple reasons: inefficiency to beat market fluctuations, the common short-term underperformance data and the accumulated transaction cost of making frequent purchases and sales.

What is the biggest risk of market timing?

Answer Field

The biggest risk associated with market timing is the failure to be in the market at the right time. Investors tend to miss out on promising returns from stocks. 

What is a perfect market timing strategy?

Answer Field

A perfect market timing strategy is where an investor has developed the skill to predict market trends with almost 100% accuracy. 

What is the best time of the day to buy stocks?

Answer Field

The stock market is an ever-changing space making it unfair to pinpoint a specific time to be best for buying stocks.However, experts suggest the first two hours of the day are a promising window. 

What is the danger of timing the market?

Answer Field

Timing the market comes with the danger of missing out on windows providing promising returns.

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