A READER sent an intriguing question to INQUIRER.net and I’ve been spending quite a big chunk of my time going around business circles and asking experts what they think. But before I post their replies, I want to know what MoneySmarts readers think. Here goes:
After reading all of the columns and articles on investing, personal finance, and wealth management, there is still one question the bugs me to this day? Yes, we’ve learned about asset classes, risk and return, profiling, suitability, a lot of other terms. But when it comes to managing your money, especially to those who have the time to do it on their own and probably not have enough to qualify for a private bank account, which is the greater truth?
1. Invest long term, don’t actively manage your investments, and just invest in the market via index funds, or
2. Invest using short term cycles (i.e. time the market) and actively manage your investments by picking the potential winners.
Hopefully, the truth will set everyone free as what The Inquirer “promises”.
Thanks and best regards.
Warren Buffet Wannabe
(name, address, and e-mail containing my real name, withheld upon request)
Come on guys, what do you think?
September 11th, 2007 at 11:09 pm
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September 11th, 2007 at 8:05 pm
Why limit long term investing to mutual funds.. you can also be a long term investor thru individual stocks. By doing the latter, you’ll avoid hefty sales load and annual fees.
September 11th, 2007 at 6:39 pm
[...] Money Smarts : Long-term investing vs timing the market [...]
September 11th, 2007 at 2:07 pm
for most people, before planning to be rich, a plan to financially secure should be first established. this plan for security and comfort must be as no-brainer and automatic as possible. (i.e. handing over the funds to a professional fund manager, long term investing). once that plan is established, there is now more freedom to speculate on riskier investments. at least, when things go wrong with the speculation and timing the market, in the end one is still financially secure.
sad thing is, most people don’t even have any plan at all…
September 11th, 2007 at 12:54 pm
Salve,
In my experience so far a mix of both works just fine with regard to equities.. I still hold physical stock certificates of my insurance company which demutualized way back in 1999 (thank God for demutualization!) and 2 other listed firms belonging to the industry sector where I work since the early 90s. These account for 70% of my equities portfolio and I consider them long term investments. Before I fully liquidated my index fund last month after holding on to it for 3 years, it accounted for almost 20% of my portfolio (the gains now kept safe in a non-equity UITF). The remaining 10% is in my online trading account. This is what I use to dabble in “timing the market” (I have an average but dismal passing grade here). The 30% actually constitutes part of my emergency fund since they can be liquidated into cash in 5 banking days maximum.
Depending on your risk tolerance and investment objective, I believe a flexible mix of both long term and short cycle strategies is worth it, instead of simply choosing one s-a-vis the other.