Market volatility can be overwhelming, leading some investors to head for the exits and sit in cash. While this seems like a prudent way to reduce risk, it usually does the opposite, turning temporary losses into permanent losses.
The experience of investing teaches us important lessons about the dangers of market timing such as:
Market losses are rare, short-lived, and impossible to reliably predict.
Usually the stock market is like a runaway train, making new all-time highs and rarely revisiting old levels. Because of a behavioral bias known as hindsight bias, we often think that in the past we predicted the present, and therefore we convince ourselves that we can predict the future. This bias comes in part from the fact that we often struggle to remember our failed predictions.
Bear markets offer a rare chance to buy at “yesterday’s prices”.
Bear markets (episodes where the S&P 500 falls more than 20%) are a time period that captures drawdowns in history. These are historically the only times that markets can offer an opportunity for investors to buy stocks at levels that haven’ t been available for several years.
Market timing doesn’t add value unless everything goes right.
In order to add any value versus a buy-and-hold strategy, you would need to sell high and buy low with the right timing. If you sell too early or buy too late, you risk missing out on gains that could exceed any potential market-timing profit you might have hoped for.
Diversification changes the game.
In real life, it’s fortunate that investors have more investment choice than just the S&P 500 or “all-in” or “all-out”. A balanced portfolio has historically produced growth that is far more durable and reliable than a 100% investment in stocks: shallower drawdowns, faster recovery times, and more durable bull market gains.
While market timing can be tempting, its imagined benefits are ultimately a mirage. The phrase “buy low, sell high” may sound clever, but it has historically proven to be a fallacy because most investors tend to overestimate how much they stand to gain from market timing, and tend to underestimate the cost of waiting for a pullback.
UBS Financial Services inc.
(262) 794-0872
advisors.ubs.com/burishgroup
Tasha Bremel is a Financial Advisor with UBS Financial Services Inc. a subsidiary of UBS Group AG. Member FINRA/SIPC in Madison, WI. The information contained in this article is not a solicitation to purchase or sell investments. Any information presented is general in nature and not intended to provide individually tailored investment advice. The strategies and/or investments referenced may not be suitable for all investors as the appropriateness of a particular investment or strategy will depend on an investor’s individual circumstances and objectives. Investing involves risks and there is always the potential of losing money when you invest. The views expressed herein are those of the author and may not necessarily reflect the views of UBS Financial Services Inc.
As a firm providing wealth management services to clients, UBS Financial Services Inc. offers investment advisory services in its capacity as an SEC-registered investment adviser and brokerage services in its capacity as an SEC-registered broker-dealer. Investment advisory services and brokerage services are separate and distinct, differ in material ways and are governed by different laws and separate arrangements. It is important that you understand the ways in which we conduct business, and that you carefully read the agreements and disclosures that we provide to you about the products or services we offer. For more information, please review client relationship summary provided at ubs.com/relationshipsummary, or ask your UBS Financial Advisor for a copy. Expiration: 9/30/2025 Review Code: IS2404094
