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News / It Is Time Not Timing That Reaps Rewards

It Is Time Not Timing That Reaps Rewards

12.03.12

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?Is this a good time to invest?? This is one of the questions we are frequently asked, and the answer is ?yes? more often than not. If you need to protect the value of your savings

?Is this a good time to invest?? This is one of the questions we are frequently asked, and the answer is ?yes? more often than not. If you need to protect the value of your savings from inflation, it is generally better to be invested for the long-term rather than wait in the sidelines for a ?right time? to invest or trying to time the markets.

Unpredictable events and investor sentiment can have a negative or positive impact on markets, often unexpectedly, and no-one can predict the future. If you wanted to time the markets you would need to accurately identify both the best time to buy and the best time to sell, and even very experienced investors cannot get this right most of the time.

Time in the markets is a wiser strategy for most investors than timing. Often a few very good days account for a large part of the total returns over a market cycle. Being out of the market means you miss out on the sudden market rallies that could considerably improve your long-term wealth.

There are many statistical examples to illustrate this. Goldman Sachs calculates that a hypothetical investment in the US S&P 500 index from 1992 to 2011 would have generated an average annual total return of 7.81% if invested for the whole 5,046 days. If you missed the 10 best days your average annual return would only be 4.14%. If you missed the 70 best days, you would have recorded an annual average loss of 7.20%.

BlackRock have a similar illustration using the FTSE All-Share index. A ?100,000 investment would have grown to ?598,478 over the 20 years from 1st January 1991 to 15th August 2011. If you missed the five best days your return would be ?186,738 less. If you missed the 25 best days your total return would only be ?172,955.

Portfolio performance is more significantly determined by asset allocation and diversification than market timing. Blevins Franks helps you establish the most suitable allocation for your portfolio based on your personal objectives, circumstances, time horizon and risk tolerance. We then review your investments every year to ensure your portfolio remains on track with your objectives and takes any change in circumstances into account.

Tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; individuals should seek personalised advice.
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