Timing the market

What do you feel you should do when we have a correction in the market, like in 2008? Would you feel more secure if your money was in a conservative portfolio? Do you think it’s wise to move your money to a conservative portfolio, and when the market recover, switch it back to aggressive?

The answer is that you are playing with fire.

Let’s look at a scenario where a client invested R100 000 in 1997.

  • First scenario is where this client stayed in the market and sat it out. He/she had a return of R795 334 on R100 000 invested (see graph right)
  • Second scenario the client made R437 062 by missing the top 10 days of the market.
  • Third made R256 350 by missing the top 20 days of the market
  • Fourth made R108 235 by missing the top 40 days of the market.

The biggest problem by timing the market is not when to climb out, but it’s actually when to get back in, and it’s here where the most yield (gain/return) is lost. (This scenario was given to us by our friends at Investec.) We must also remember that the market has always recovered after a correction/crash and that next time it will not be different.

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