Research shows that regular investing generally yields better outcomes than attempting to time the market

Wondering when to enter the stock market? Invest regularly instead of timing the market

Saanvi Aggarwal, 40, is a corporate professional, and recently received a year-end bonus of Rs.10 lakh. She is aware of the higher return potential of equity, but remains cautious about the risks, especially due to the market’s highs over the past year. Although a slight correction has occurred, she’s uncertain if this is the right moment to invest in equities or if a more significant market correction may be approaching, which she could leverage.

Saanvi Aggarwal is contemplating when to enter the equity market, aiming to ‘buy low and sell high’. Market timing involves predicting whether the market will continue its current trajectory or reverse course, an uncertain task. For Aggarwal, it’s challenging to gauge whether a stock that has doubled in five years is at its peak or if it will further increase in value. The same uncertainty applies to stocks that are declining. Ultimately, the dilemma she faces is that investing hinges on the future, which is inherently unpredictable.

While Aggarwal is inclined to wait for the ‘right’ level to invest, she might feel compelled to sell after a major drop or invest eagerly in a rising market. This tendency to anticipate further falls in a downturn or additional gains in an upswing may lead her to buy high and sell low, ultimately impacting her returns. Alternatively, waiting for the ‘perfect’ time could lead to ‘investment inertia’, keeping her sidelined indefinitely. Timing the market can be a challenging game to win.

Research shows that regular investing generally yields better outcomes than attempting to time the market. If Aggarwal had invested systematically in the Sensex over the past five years, she would have possibly outperformed market timing attempts, which carry the risk of misjudgement. While timing may sound ideal in theory, it rarely proves successful for most investors in practise.

To avoid regret over a potentially poor timing decision, Aggarwal risks endlessly waiting for the ‘right’ moment to invest. Instead, her best strategy should be to forego market timing, create a plan, and invest systematically at regular intervals over the next several weeks or months.

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Content courtesy Centre for Investment Education and Learning (CIEL).
Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.
(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)

This story originally appeared on: India Times - Author:Faqs of Insurances