Time or timing in the markets
How important is the timing of the markets to investors?
I know a retired man who spent his pension to buy a car at a time when the markets were very hot. This was in February 2020 when the Coronavirus started to spread all over the world. The next month, the markets started to slide. I told him, “No wonder you’re smiling.”
That was good luck rather than good management, but you can consider that good timing even though it was just a fluke.
There are other cases of investors not being so lucky.
One of them was an investor who changed from growth funds to conservative funds during a market downturn only to find that he lost all the gains when the market recovered, losing thousands of them.
Another is an investor who used some of his retirement funds to put into a home because he can do so with kiwisaver, New Zealand’s retirement savings plan. Sounds good, but they pulled back the amount they were able to make during a time when the markets were falling and the losses were said to be fifteen thousand. Just like the other investor who changed his money, this investor also lost his gains when the markets recovered.
The New Zealand real estate market went crazy during 2020 due to the number of New Zealanders returning home and buying homes. Many people have jumped on the real estate buying bandwagon. It’s the FOMO factor at play here. FOMO, for those who don’t know, stands for “Fear of Missing Out.”
One common theme that comes out of all of this is that the real estate market is out of reach for the first home buyer. It is still important for people to build their asset base and find alternative ways to invest their money because having assets behind you puts you in a greater financial position for anything in the right track.
The key to investing is doing it the right way. You wouldn’t invest in growth funds if you were going to use the money for some other purpose in the short term because the markets might drop right before you withdraw the money. On the other hand, if you have time on your side, investing in riskier funds may be an option if you have the mood to deal with volatility.
The investor needs to decide whether to use this money in the long, medium or short term and set their goals accordingly. The investor’s risk profile is another factor to consider; It’s easy to be an investor when the markets are going up, but if the rapid ride of growth stocks causes you to lose sleep, then you have to be more conservative.
An investor who turned to more hedge funds when the markets were going south and missed out on gains when he recovered allowed his emotions to run out. It is important for investors to get over themselves and train themselves to invest with the right mindset.