Why time in the market is better than timing the market

With the current market volatility and general mood of uncertainty with the economy and society, many Singaporeans may be wondering if it’s a good time to invest. While navigating the markets can be complex for many, especially investors in Singapore who are newer to the markets or those who feel less confident to do self-directed investing, there is no good excuse not to invest as over time, they will be able to reap the rewards.

As lower and negative interest rates become a new normal, it becomes less likely for consumers to gain any significant saving rates from the banks and more imperative to seek higher returns in assets like equities.

Not about timing the market, but about time in the market
The current climate is where the simple but effective investment strategy of Dollar-Cost Averaging (DCA) could work well to produce rewards for investors in the long run. With DCA, investors will buy more shares when prices are low and fewer shares when prices are high. Over time, that should result in a lower cost per share, which is less than the average price per share.

DCA investing keeps investors engaged in the markets. The longer term horizon means that DCA is not for traders, but really for long-term investors who are committed to riding out the highs and lows of business cycles, and are looking to compound their wealth over time. While investors are of course exposed to market risk, there are also growth opportunities to be reaped over time. Although past performance is no guarantee of future returns, over long periods of time, history has generally favoured the bulls over the bears.

Investing into a regular savings product is a relatively fuss-free way that allows investors, even rookie ones, to participate in the market, without waiting to save or receive a large lump sum of money to getting a start in building their weight. The sooner one gets into the game of compounding returns, the bigger the overall results are.

Typically, most regular savings plans let people invest a fixed amount of funds every month into buying blue chip stocks, bonds and ETFs, using DCA to protect people from the volatility of the markets by buying in small chunks and on a regular basis, regardless of price.

One way to mitigate the risk of, say, a single stock going bankrupt, is to deploy the DCA strategy on a broad basket of single stock names, or on a main index like the Nasdaq-100 or on a name one knows very well (e.g. Amazon, Microsoft, Altria, Exxon, Tencent, Alibaba).

Another way is to directly invest into managed portfolios rather than a single stock or ETFs via a regular savings plan. There are benefits to investing into a regular savings plan that channels the funds into professionally managed portfolios – first of all, it lets investors enjoy having an automated allocation to DCA, which frees them from the pressures and time of watching the market, including the psychology of trying to decide whether investors are being driven by FOMO (Fear Of Missing Out) or are not sure if this is the best time to BTD (Buy the Dip). Secondly, a much more diversified portfolio tends to deliver stronger results for those who invest over time, as the same amount of money invested each month into the portfolio buys up more of an asset when prices go down and less when prices go up.

A strategy for rain or shine
Timing the market is incredibly hard, if not downright impossible to be done consistently over time.

There are full-time professionals with billions of capital, access to the best technology, people and research, who even with all those resources, cannot time the market perfectly over time.

From internal and external research, people are looking for ease of use, ease of account opening, low fees and mobile access when it comes to online investment. For regular investors who want their money to work harder for them, investing a set small amount relative to salary every month into a diversified managed portfolio lets investors get into professionally managed ETF portfolios affordably, allowing investors to structure their lifestyle for wealth building over time. The risk of not investing a small amount of money every month, is that the same amount of money probably ends up getting spent on something else.

It may seem like a boring strategy that may not be the talk of the dinner table – yet take it from one of the best money managers to have ever lived, George Soros, who says “good investing is boring”.

By investing over time, investors are basically diversifying the timing risk in regards to the market – i.e. not buying at the top before a huge market crash or bad earnings announcement by a company, and they are likely to win in the long run, be it rain or shine. 

This article was first published in Singapore Business Review: https://sbr.com.sg/economy/commentary/why-time-in-market-better-timing-market