Few words characterize today’s financial markets like uncertainty. When overseas economic issues can rob investors of months of gains and speeches by Federal Reserve officials cause markets to flip-flop unpredictably, investors are left wondering what they should do. In an attempt to make major market movements work for their portfolios rather than against, some investors attempt to time the market.
Market timing is the strategy of trying to predict future market movements to time buying and selling decisions. When markets are rallying or pulling back, it can be very tempting to try to seek out the top to sell or the bottom to buy. The problem is that investors usually guess wrong, missing out on the best market days. Can the cost of trying to time the market make a big difference in your returns? You bet it can.