#4-  Market timing is a hazardous exercise.

When prices are soaring, everybody wants to buy stocks.  When prices are tumbling, everybody wants to sell stocks.  However, in the end, the biggest winners are those steady souls who are able to recognize and overcome both temptations and stay the course.

Warren Buffet is a legendary investor.  He once said, “I never have the faintest idea what the stock market is going to do in the next six months, or the next year, or two.  But I think it’s very easy to see what’s going to happen over the long term.” 

We all know that over the long term, it’s going up.  Historically, the market averages 11 percent annually.  The problem is that it doesn’t go up exactly 11 percent every year.      

Investors usually get in trouble when they try to be smarter than anyone else.  Despite what you hear from all of the experts---no one has the consistent ability to predict the short-term direction of the market.  Perfect market timing is impossible.  Moving money back and forth from one sector of the market to another or from cash to stocks or stocks to cash is almost bound to produce subpar returns.  You have about as much chance of timing the bottom or the top of the market as buying the winning lottery ticket.

In the 840 months since 1927, 90% of the absolute gain in the stock market has come during 30 of those months;  3.5% of the total.  The market moves in surges, sometimes when least expected, and if you miss a few days, it can be very costly.  People who are already invested reap the benefits.   If you try to time the market, you have to be right twice.  It’s hard enough to be right once. Jumping in and out of the market increases the odds that you will be out of the market when you should be in it.