Why time in the market is better than timing the market Why time in the market is better than timing the market Why time in the market is better than timing the market

Why time in the market is better than timing the market

Thought Leadership 7 minutes to read
Adam Reynolds

APAC CEO of Saxo

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

Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-gb/legal/disclaimer/saxo-disclaimer)

Saxo Markets
40 Bank Street, 26th floor
E14 5DA
London
United Kingdom

Contact Saxo

Select region

United Kingdom
United Kingdom

Trade Responsibly
All trading carries risk. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more
Additional Key Information Documents are available in our trading platform.

Saxo Markets is a registered Trading Name of Saxo Capital Markets UK Ltd (‘SCML’). SCML is authorised and regulated by the Financial Conduct Authority, Firm Reference Number 551422. Registered address: 26th Floor, 40 Bank Street, Canary Wharf, London E14 5DA. Company number 7413871. Registered in England & Wales.

This website, including the information and materials contained in it, are not directed at, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in the United States, Belgium or any other jurisdiction where such distribution, publication, availability or use would be contrary to applicable law or regulation.

It is important that you understand that with investments, your capital is at risk. Past performance is not a guide to future performance. It is your responsibility to ensure that you make an informed decision about whether or not to invest with us. If you are still unsure if investing is right for you, please seek independent advice. Saxo Markets assumes no liability for any loss sustained from trading in accordance with a recommendation.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the U.S. and other countries. App Store is a service mark of Apple Inc. Android is a trademark of Google Inc.

©   since 1992