In the field of property investment, there is probably not a more controversial topic than timing. There are some divergent views and opinions on the possibility of timing the market as some school of thought holds that it is impossible while another school of thought believes that it is something that can be done.
Timing the market is an intriguing concept as it sees investors actively seek means to game the market so that they can avoid losses on their investment portfolios.
Understanding timing the market
Timing the market, also known as countercyclical investing, means when an investor or an individual seeks to predict the future of their investment on whether it would become profitable or incur a loss.
To put it in simpler words, timing the market follows the concept that investors can forecast when to buy and sell their investment that it would yield an enormous amount of profit for them.
But, over time, the market has shown that it can’t be timed, which leaves one wondering how the concept of timing the market was able to gain root in the mind of many investors.
Successful investors in the property industry know that wealth can be created at any time during a cycle especially when it is done with a lot of intelligence and due diligence, as every investor can create his own “perfect timing.”
Why you can’t time the market
The following reasons are why you would most likely be unable to time the market.
- The market can sometimes be very unpredictable and volatile
Robert Shiller, a Nobel Prize-winning economist, carried out a survey to study why the international stock market, including the United States of America, recorded over a 20% fall in one day in October 1987 and discovered that the fall did not have any external causative factor instead, the psychology of investors caused it.
This means that it would be quite impossible for anyone to predict a market that hinges on the whims of the psychology of investors in the market.
- Timing the market can lead to making more tax payments
Under the current tax code, long-term investments are taxed at 15% while short term investments are taxed at 28%. This means that holding on to an investment for a longer period of time can help you to achieve a better tax outcome that has the potential to help you improve your interest returns on the investment.
You would be able to save 13% of your profits when you hold on to your investment for a considerably longer period than when you sell off almost immediately.
- Timing can be unsuccessful
No matter the level of success some might have recorded when they timed the market, it was simply a case of luck being on their side, and it cannot be replicated over a long period of time. It is why some people who time the market, sometimes, also record a large amount of losses because their earlier success is not sustainable neither can it be replicated over a long period of time.
As such, investors who time the market may sometimes, out of panic, go on to sell their investments which could later yield subsequent and substantial gains for them.
The fear of losing their investment or the greed of waiting for when the investment can yield the highest returns as made many investors lose all of their investments because of their trying to game the market.
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Disclaimer: The views and opinions of Eric Lawrence Frazier are his own and do not necessarily represent views of First Bank or any organization affiliated with Eric Lawrence Frazier, or the Power Is Now Media Inc. First Bank is an Equal Credit Opportunity Lender. Eric Lawrence Frazier MBA is also a Vice President and Mortgage Advisor with First Bank. NMLS#461807 and a California Licensed Real Estate Broker DRE# 01143482. Email: Eric.frazier@fbol.com. Ph: 714- 475-8629.
Eric Lawrence Frazier MBA
President and CEO
The Power Is Now Media Inc.
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