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Timing vs. Time in the Markets, or Why You Want to Be the Tortoise

Personal Finance
Why You Want to Be the Tortoise

By Jeremy S. Office, Ph.D., CFP

Learn more about Jeremy on NerdWallet’s Ask an Advisor

When market volatility rises, people start questioning their portfolio allocations. Should I go to cash? Should I invest more? Can I really stomach the amount of risk I thought I could?

But none of these is the question you should really be asking. That question is: How much time do I have to attain my goals? People worry about timing the markets when their true focus should be on time in the markets.

I can’t help but think of Aesop’s fable “The Tortoise and the Hare.” The energetic, fleet-footed hare makes fun of the plodding tortoise. Challenged to a race, the hare assumes he will win by a mile. But he’s overconfident and easily distracted, even stopping for a nap. Ultimately, slow and steady wins the race.

Trying to time the market is acting like the hare, jumping in and out of the race. It’s a risky strategy aimed at outsmarting the market. But as we all know, the markets do not act in a linear, logical manner. One mistimed transaction can cost you not only your initial investment, but also the potential upside. You run the risk of sitting on the sidelines, napping, during the best-performing markets.

With the increasingly free flow of information, much of it available instantly online, the notion of getting ahead of the herd on a trade is almost extinct. Are quick trades really going to get you to the finish line?

The tortoise, meanwhile, has his eye only on the win, not on the twists and turns of the course, nor even on his competitor. Your time in the markets should be dictated by your personal goals, not by what’s happening elsewhere in the market or by your neighbor’s portfolio. If you are looking to retire in 20 years, all these fluctuations are just noise. Stay focused on your buy-and-hold strategy. This strategy — plus time— has resulted in higher gains over the long run.

Buy and hold does not mean buy and forget, though. As your goals get closer, you’ll want to rebalance your portfolio. But how you do it should be based on your needs, not the market.

The more haste, the worse the speed. This is not a race to the finish. Don’t be bullied by sensational headlines or the fear of being left behind as the market rallies. At the end of the day, perseverance and focusing on your goals will take you to the finish line in stride.


Image via iStock.


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