Trustnet Magazine Issue 45 November 2018 | Page 44

In the back
[ PLATFORMS & PENSIONS ]
42 / 43
AltRetire’s John Blowers says
timing the market to avoid a
correction is a mug’s game – and
advises focusing on three other
variables instead
Crash
dummies
S
ome people with the gift of
hindsight will tell you there
are points in the stockmarket
cycle when you should sell
out of equities, allowing you to avoid
the worst of a correction and buy back
in before the inevitable rebound.
And if you had done this, you would
have made a veritable fortune.
Imagine selling all of your holdings
at their highest value and then buying
the very same ones for 20, 30 or maybe
even 40 per cent less, before watching
them grow again over the next bull run.
The fact is, nobody – not even
the most respected investment
professionals – can time the market
with any level of accuracy or success.
Trying to sell at the top is fraught
with danger. Will I sell too soon?
When is the top of the market?
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The chances are you’ll go too
early, or worse too late and miss
that moment. Then there are all the
transaction costs and the question of
what to do with all the cash that you
have generated.
Then you have to call the bottom of
the market. Again, you’re likely to buy
back in too early or too late for the
exercise to be worthwhile.
This is why some of our most
respected investment professionals
tend to offer the advice “buy and hold”.
Nobody likes to see their portfolio
is worth a lot less than it was a few
months ago, but investing isn’t a
linear activity and although the
market is cyclical, you cannot predict
the extent of a correction, nor the
length of time it will last. I suppose it
makes it exciting and fear-inducing in
Nobody likes to see their
portfolio is worth a lot less
than it was a few months
ago, but investing isn’t a
linear activity
equal measure, but it doesn’t make for
easy planning.
This is the point in every article
where the writer will fish out a chart of
the FTSE 100 and show the end point
is always higher than the start, so what
are we worried about? I have done the
same here.
The point to note is that over the last
35 years there are plenty of scenarios
in which the starting point of your
investment journey has been higher
than the finish point, which means
that you’ve lost real money.
For example, if I’d invested
£100,000 in a FTSE 100 tracker at
the start of September 2000 and
sold it the best part of a decade
later, at the start of March 2009,
even with dividends reinvested I
would have got back just £76,151.73 –
a staggering loss of almost £24,000.
And this is what continually gnaws
on our subconscious as investors.
What if that happens to me?
However, those of us with a glass
half-full disposition would say that if
I’d put £100,000 in at Christmas 1989
and cashed in 10 years later, I’d now
be holding a cheque for £428,622.31
– a whopping £328,622.31 gain.
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