What is the number one mistake when it comes to investing? Attempting to time the market. We’ll explain why.
Put simply, timing the market is trying to figure out the best times to put your money into and pull it out of the stock market. We’ve all heard, “buy low, sell high,” but when do you know the optimal time to do that? You don’t and neither do the talking heads trying to convince you that they do.
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Being conservative doesn’t sell newspapers or television advertising. Jim Kramer ranting like a lunatic sells those things. But screaming lunatics are seldom right. Do you take advise from the “dirty ass unemployed gentleman” (call back!) screaming about end times outside the subway station? Well, if he had a TV show, he could be Jim Kramer.
The stock market offers a wonderful gift of an average of 7% returns. There will be highs and lows but in the long term, the market goes up. It’s the short term that the prognosticators are trying to predict and they are usually wrong.
There are just too many variables and no one can predict the future. The prognosticators are just loud and get a lot of attention and they make really bold predictions all the time. Once in awhile they get it right and suddenly they look like Nostradamus.
The correct way to time the market is through dollar cost averaging, which we explained it Episode 99. This just means slow dripping your investing money into the market rather than throwing it in all at once. This is a good philosophy for new people who are nervous about investing. But you will make more, over the long term, if you lump sum it.
The market is herd mentality.Tweet This
Market corrections happen often. All kinds of things can effect this, domestic political events, world political events, natural disasters even. This doesn’t affect us long term, you shouldn’t be checking your investment accounts daily and freaking out over the fluctuations.
A bear market is when all the investors are “hibernating” and not putting money into the market. This is bad. But a bear market is always followed by a bull market when investors come “charging” into the market.
If the knowledge that these gurus have, which they will generously bestow upon you in their newsletter for the low low price of $19.99 was so great, why aren’t they richer than Warren Buffett? Something to ponder.
The takeaway is to get your money in the market. There is no one tip that will make Wall Street hate you. It’s not sexy but it will get the job done.
Blue Coat Gin: A local Philly gin.
The Five Mistakes Every Investor Makes: If you’re nervous about getting into the market, read this and learn to avoid mistakes.
Betterment: Set it and forget it.
LMM Tool Box: Everything you need to get good with your money in one place.