4 Time in the market not timing the market

Many people attempt to trade the markets – both in terms of timing and by being under/over weight asset classes. You have to ask yourself if you are a trader or an investor. We are investors, and do not try to enhance returns by trading. Few people are good traders – and usually those that are, are in very specific environments that tilt the odds in their favour. When we select absolute or targeted funds that rely at least partly on trading for their returns, we seek to ensure that they have such an advantage. Trading without such an edge, is akin to gambling. We therefore do not attempt to time the market, but instead aim to invest as soon as possible, to maximise income earned by the portfolio – see the next point.

Furthermore, you only need to be out of the market for a few key days, to significantly reduce the long term return of a portfolio. A study by J P Morgan showed that in a 10 year period, being out of the market on 10 key days reduced return from 9.85% to 6.1%, whilst being out for 40 days wiped out the positive return completely.

Having said this, if we are given a lump sum to invest, we normally take 3 months to fully invest it, in an attempt to avoid buying at market highs, but in the full understanding, based on the reasons given above, that this is an inexact science.