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There's No Good Time To Market-Time

As stock prices have been enjoying a sustained bull run this year, one question we’ve been receiving lately goes something like this: “Are prices now too high, with nowhere to go but down if I buy stocks at this time?”

To answer that question, consider an interesting series of blog posts from CBS MoneyWatch columnist Larry Swedroe, who is currently tracking eight “sure thing” predictions he identified at the beginning of 2013. The first of the eight commonly heard predictions at that time was: “The golden age of stock investing is over.”

So has the “sure thing” prediction come to pass? Swedroe’s mid-year update confirmed that investors who relied on January indicators to pull out of stocks at that time would have missed out on two quarters of strong, double-digit market growth. Because we see no evidence indicating that current analyses are any more reliable than they were at the beginning of the year (or any other time, for that matter), we see no reason to conclude that, this time, the pundits’ predictions are suddenly worth acting on.

The point is, no matter what the market climate is, good or bad, it is forever stressful to decide which actions to take if you don’t have any guidelines beyond headline news to chart your way. It’s not that the events being reported aren’t entirely true. They usually are. But it’s been demonstrated time and again that they offer no insights to help us predict future market returns. That’s because those returns do not go up or down based on current or predicted good or bad news. Rather, they respond to unexpected news that is better or worse than anticipated. Therein lies the rub. because the very definition of “unexpected news” is that it defies prediction.

A better way to approach the market is to play along with it, rather than trying to beat it at its own game. Rather than chasing an elusive bouncing ball, we suggest investing from a more durable tripod of complementary activities.

  1. Investing According to the Evidence – A body of academic evidence indicates that the markets are expected to deliver long-term returns to those who remain steadfastly exposed to various market risk factors. Ignore the headline news and focus on efficiently participating in that long-term market growth.
  2. Invest According to Your Own Goals – Construct a globally diversified portfolio based on your own goals and personalized need to take on or avoid market risk in pursuing them. As long as your own goals remain unchanged, so too should your portfolio’s allocations.
  3. Invest According to the Factors You Can Control – You can’t chart the impact of unknown events on near-term market prices, so there’s not much sense in using them as your compass. Focus on the components over which you can expect to exercise meaningful control, such as minimizing investment costs and remaining true to your personalized investment plans during volatile periods.

Of Timing and Market Timing

So, is now a “good” or “bad” time to buy stocks? The answer is: Let’s ask a different question. Are you investing according to your carefully constructed, long-term investment plans? While there’s no good time for market timing, there’s no bad time for forming or revisiting personalized planning as described above, and for building or maintaining a globally diversified, risk-adjusted portfolio accordingly. In fact, there’s only good time, going to waste.