How to use your time in the market

Many of us who own a share portfolio are eager to switch on the evening news or read the financial section of the morning paper to see how much profit we made the day before.

But share trading prices are really only important if you are about to sell your shares on the stock market.

It’s easy to be distracted from the big picture by short-term noise: temporary market downturns and sensational media headlines.

A look back at history

Remember 2001? The dot-com crash, September 11, Iraq war and threats of terrorism caused share markets to head down and they stayed that way until March 2003. Some investors moved money from shares into the security of cash and bonds, just as they did during the Global Financial Crisis of 2007–09. Secure, yes, but with lower returns. Cash and bonds may provide psychological comfort in turbulent times, but a change in strategy can limit your ability to generate long-term wealth.

Putting your faith in just one asset class is also a danger. Some investors saw direct property investing as a secure strategy. Then the property boom came to an end and the resources boom took over. Between 2008 and 2009 we witnessed the end of the resources boom and the Global Financial Crisis has left the legacy of depressed and volatile investment markets.

You just can’t time the market

In turbulent times it may be tempting to change strategy to protect yourself from short-term losses, but being out of the market may mean missing out on the market recovery and subsequent gains.

Share prices are driven by supply and demand. Good economic or company news attracts buyers who push up prices. Conversely, when the news is poor, prices fall. The major traders of shares are fund managers, banks, superannuation funds and other large institutions. They focus on the future and try to predict where share prices are heading – and as we all know, predicting the future is almost impossible.

Over the long term the trend is definitely up, but predicting when is not easy. In theory, you should buy in the troughs and sell at the peaks — but you’ll only know that in hindsight.

Timing the market is difficult. You just can’t pick the turning points. A better strategy is to stay invested to benefit from the upward surges. The dangers of short-term speculating are clear. Share markets reward the patient investor.

Setting up a long-term strategy is one of the many ways an adviser can assist you in order to benefit from the market over time.