Financial Wisdom for Women of a Certain Age(ncy): Market Timing

By Sherry Finkel Murphy

If I had a dollar for every time a woman tells me she’s not good with money… I teach women about money so they can make the best financial decisions with knowledge and confidence. If you want to change your money mindset, that’s the work of a therapist or coach. Doing unhealthy or unproductive things with money (and food while we’re at it) is a different challenge. My job is to address the stress we place on ourselves when we don’t act intentionally with our money, whether we have a little or a lot. We need knowledge of money mechanics and financial planning best practices.

Madrina Molly: Financial Wisdom for Women of a Certain Age(ncy)

I offer Madrina Molly membership to give women the education they deserve but aren’t receiving from the financial industry. Over the next few months, I’ll be addressing concepts that will open your eyes and make it easier to determine how to manage (and grow) your wealth.

Market Timing

Warren Buffett is credited with a marvelous quote: “Be fearful when others are greedy and greedy when others are fearful.” What he means is that following the herd is dangerous. If you are seeking opportunity, it’s not when everyone else is buying or selling in the market. In fact, it’s just the opposite. As a result, he has amassed a fortune by purchasing quality company stock when it is discounted and by avoiding the urge to purchase when company stock valuations are too high.

We all want to buy low and sell high in the market. But success is about understanding that none of us is able to predict when a market achieves its top or bottom. It’s impossible to beat the computerized trading or financial institutions that make large purchases. Our goal should be just enough success to feel profitable. Yes, there will always be the one that got away.

Perhaps the most important thing to know about buying or selling stock, funds, cars, houses, or anything, is what price will enable you to feel as if you have gotten a “good deal.”

True story: In 2001, I had a feeling that Apple’s iTunes would be big, so I purchased Apple stock for $17. I also sold it for $35. Why? Because I had doubled my money!

If you’ve been living in a home for 25 years and want to sell it, does it really matter if you get the absolute top price, rather than hold onto the property longer than you want to? If your asset has grown in value, there is benefit to taking your profit and redeploying it sooner rather than later.

Best Practice

When most of us purchase stocks and funds, we are doing so out of our cash flow—setting aside monthly or weekly income to make a regular buy. This is the most efficient way to save: at regular intervals and in consistent amounts. Stock market performance being what it is, lump sum investing works too. So, if you receive a windfall, you may choose to put it all in at once or place it in the market over time. Both methods work.

Interval investing is called Dollar Cost Averaging (DCA) in the U.S. and regular investing elsewhere. By saving and investing the same amount at each interval, sometimes you purchase when the market is high and sometimes when it is low. Over time, your average cost per share is lower than the current cost of the asset purchased.

Rebalancing your portfolio takes advantage of market timing by using allocation percentage trigger thresholds. For example, if my large cap funds have a regular allocation of 27% and their value swells to 35% of my overall holdings, I might choose to take 8% profit and feed that to underperforming asset classes. I’m still buying low and selling high. I’m just doing it in reverse: selling high and buying low.

Finally, don’t let greed interfere with your greater financial goals. If the housing market favors sellers and you find yourself an empty-nester with a highly inflated asset, maybe be an opportunistic seller. Consequently, that means you’ll need somewhere to go. But opportunity tends to favor those who are prepared, in markets and in life.

Summary

In personal finance, it’s unwise to try to time the market. By the time news reaches you, the computer algorithms and the financial institutions are already way ahead of you.

If you avoid fear-driven selling in a down market and avoid buying at the high just because everyone else is piling on, you will be just fine.

Interval saving and dollar cost averaging will help you meet all of your goals without drama and FOMO.