Stock Market Investing – Can You Time the Market?

    Published: 06-16-2009
    Views: 4,269
    Financial Advisor Ric Edelman explains the basics of investing in the stock market including how to time the market.

    Ric Edelman: You need to be invested in the financial markets all the time, especially when prices are falling, yeah, when the stock market experiences a sudden drop, it's tempting to panic and sell. The losses can be scary and you might be afraid to lose even more.

    But selling is the worst possible thing you can do. As I showed you on a prior video stock prices and bear markets fall just for a short time. But in bull markets they rise for a long time really a lot. The problem is that there's no way to predict whether a bull market or a bear market is coming next. Oh sure, people claim, they know what will happen next, but you have to ask yourself, if that guy is so sure, why is he telling you? The fact is guessing is dangerous. Since nobody knows which days will be profitable for stock prices, it's easy to miss the gains if we are sitting on the sidelines, that's why the better approach is to stay invested the entire time, so that we can catch the profits when they come. Want proof? Let's look at the 15 year period from 1995 to 2009. If you were invested in the S&P 500 stock index the entire time, that's 3827 trading days, you would have earned 7.

    4% per year on average according to Ibbotson Associates. But if you missed the 10 days of that 15 year period when the market did best, your average annual return would not have been 7.

    4% it would have been zero.

    Yeah, the entire profit of 15 years came in just 10 days. Could you have picked the 10 days out of those 3827 days, not a chance, no one else could either. So don't get scared when market prices are volatile, hang in there, be confident that prices will recover.