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Fear-of-missing-out and the futility of market timing




Turbulence can breed troublesome behaviour

Fear-of-missing-out can have a dangerous influence on investors who subscribe to ‘market timing’. Acknowledging that there is always a time when you enter, remain and exit, market timing suggests that you can get better investment returns by predicting when to move in and out of markets or asset classes, sometimes on short timelines.

Witness Wednesday, October 24: With eyes & ears peeled to devices awaiting the Bank of Canada interest rate call (it went up by 0.25%), markets took a tumble. Closest to home, the Toronto index had its largest one-day decline since 2015.

Are these events connected, could you have predicted this, and could you have moved to avoid fallout? “Maybe” on all counts, but most importantly on that last one, should you?

The financial planning lens
Financial planning is the broad view of you, informed by your past and aware of your future, so that you can act confidently in your present. A critical component of this is how you view and manage your investments, from the overall purpose of funding your future, down through the particular parts with nearer-term intentions.

As conditions change out there, you need to make appropriate adjustments so the investments continue to serve your defined purposes. It’s about getting and staying informed, and being at-the-ready. You’re not merely reacting and being driven by observations, but rather responding in a measured manner that always comes back to you.

From principles to the practical What experienced financial advisors say and do
Market timing as a concept has been around as long as markets. As to its ease-of-use and effectiveness, the website Investopedia points to research from Morningstar that suggests it most often comes up short in both respects1. That said, none of us are made of pure logic. We’re emotional, some more than others (especially in turbulent times), which makes the notion of market timing enticing. How do you keep yourself on-track?

First, look to your advisor to provide you with insight, backed up by credible research, until you are content that you understand what is going on. Effective advisors take the initiative, and can demonstrate their experience by sharing how they have addressed this in the past. And without downplaying the seriousness, relevant stories and analogies help as emotional reinforcement, as expressed here by some of our Senior Wealth Advisors:

Not in my house
Paul Shelestowsky asks, “If one day you woke up and found out your $500,000 house is now worth $450,000, would you sell it, put the money in cash, rent for 6 months, then buy your house back for $500,000?”

Cruising along
Nancie Taylor points out that, “Cruise ships will often run into rough water during a voyage, but you don’t jump on the life rafts and abandon ship. You trust the captain and crew to get you to your destination.”

Wear blinders, but don’t act blindly
Jordan Damiani sums up, “Blinders keep a race horse focused on the track ahead, not on the distractions at the side. In fact, they’re not blinders at all – they’re ‘focusers’.” In short, focus on your individual time horizon, goals and risk tolerance, with diversified investments that take speculation out, so you have a successful long-term result.

1 https://www.investopedia.com/terms/m/markettiming.asp 

Speak to your Meridian Business Advisor & Wealth Advisor for perspective on these important issues.

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