Time in the Market - Not Timing the Market

The remarkable turnaround in the equity market and select equity-based unit trust funds over the past few months is encouraging. However the volatility seen in recent months has prompted numerous investment houses to take defensive positions as they feel the US, in particular, is still facing systemic risk.

If you have savings or investments, it is only natural to have some concerns - so, what does one do?

• For clients already invested this is the time to keep to their long term strategies and have faith in the individual positions that our selected funds have taken.
• Monthly investors to keep investing and even consider increasing their debit order investments to take advantage of any future volatility. Technically, this strategy is called Rand-Cost Averaging, which means that you will buy your unit trusts at bargains during dips in the market and then benefit over the longer term when markets rise. The principle of Compound Interest and Rand-Cost Averaging provides a means of reducing the risk of investing during a period of market volatility. It helps to overcome the investor paralysis often associated with falling markets and offers the potential of participating in the purchase of an investment at reduced prices. [See our communiqué of 23 July 2009: Rand Cost Averaging]
• Establish what your financial planning needs are and set some objectives.
• Be clear about your time horizon.
• Be clear about your attitude to risk.
• Do not try and time the market! Often a few very good days account for a large part of the total return. By trying to time the market, one could potentially miss out on market rallies.

The chart below shows the relationship between a buy and hold strategy and the effect on your returns should one have missed 30 of the best days during the period:

The chart below shows the relationship between a buy and hold strategy and the effect on your returns should one have missed 30 of the best days during the period:

So resist trying to time the markets. Set clear objectives, be mindful of how long you want to invest for and ensure you have a well-diversified portfolio. Understand exactly the risk involved and - very importantly - have regular reviews.

Silke Financial Services - skilled risk and investment strategy consultants that provide a unique service offering not available elsewhere in the marketplace.