127) Time In the Market vs Timing the Market.
It is not WHEN you invest, but HOW LONG you invest.
It is very difficult to time the market. Which means very difficult to know when to buy and when to sell.
Trying to predict the market is very tough and will take a lot of your time, knowledge and expertise. If you are always trying to be in and out of the market, you are considered as a Trader not Investor.
Traders are only interested in the Short Term profits.
Investors are looking for Long Term profits.
Being a trader, you really need a nerve of steel. The market fluctuations will definitely affect your emotions. Many times your predictions will be wrong.
After you buy, the stock drops. After you sell, the stock go up.
If you are working or running a business, you don't have the time to spend looking for the best stocks. Then you need to know and to decide the best time to buy and sell. Furthermore, doing it on your own is risky. There are nobody to check and question your decisions.
It is better to let a Unit Trust fund manager to do the job for you. You just pay the initial service charge to get your money invested into a fund. The Management fee, Trustee fee and other charges are just of a small percentage of the invested amount.
The best part is that the fees and charges are paid from your invested fund. No need for you to pay extra from your pocket.
With the expertise and experience of the fund manager's team of professionals, your investment is being managed continuously. The whole team of fund managers will do the research, discuss and strategize the best approach for the investment on continuous basis.
You may have heard about the last market crisis in 2008. Let's have a scenario where we simulate 2 investors. Both Adam & Bob invested in the same fund. Adam started at the highest point (Jan 2008), just before the crisis. Bob was lucky to start the investment at the lowest point (10 months later on Oct 2008) after the crisis.
Below is one Malaysia Equity Fund performance before the 2008 Financial Crisis.
Below is the same Malaysia Equity Fund performance after the 2008 Financial Crisis.
If you look at the Fund Total Returns:
a) Before Crisis from 11 Jan 2008 to 2 Oct 2017 = 46%
b) After Crisis from 28 Oct 2008 to 2 Oct 2017 = 125%
Return Difference: 79% (A Big difference!!!)
Let's simulate using actual investment but with 2 different investment strategies.
a) Single Lump Sum
b) Regular Investments
A) Single Lump Sum Investment
Adam:
Initial Investment: $1,000 on 11 Jan 2008
Total current NAV: $1,384 on 2 Oct 2017
Profit: $384 (38.4%)
Bob:
Initial Investment: $1,000 on 28 Oct 2008
Total current NAV: $2,135 on 2 Oct 2017
Profit: $1,135 (113.5%)
Profit Difference: $1,135 - $384 = $751
(75.1%, What A Big Difference!!!)
Big Difference in Profit due to Market Timing.
Adam at Highest point, Bob at Lowest point.
The Actual Profit is lower due to Initial Service charges. This reduced the actual initial invested amount (Working Money).
B) Regular Investments
Graph above showing Adam's Regular Investment Before Crisis.
Adam:
Initial Investment: $1,000 in Jan 2008
Regular Top Up: $100 monthly from Feb 2008 to Oct 2017
Total Amount Invested: $12,700
Total current NAV: $15,896
Profit: $3,196
Bob:
Initial Investment: $1,000 in Oct 2008
Regular Top Up: $100 monthly from Nov 2008 to Oct 2017
Total Amount Invested: $11,700
Total current NAV: $14,949
Profit: $3,249
Profit Difference: $3,249-$3,196 = $53 (Small difference only!!!)
Why is it that (for Regular Investment) Adam and Bob investment profits are very similar? Hardly any difference!
The main reason is that the investment amount was not one lump sum. Both investors use the concept of Dollar Cost Averaging.
By Regular investments, you are able to buy at high and low prices. The initial high price impact was reduced by the many other lower prices over the years.
Investors are advised to do regular investments to reduce the impact of market timing.
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