Timing can be everything in the market, but it’s not easy to do.
According to Bank of America Merrill Lynch’s Savita Subramanian, trying to play the timing game is walking a razor’s edge.
“Trying to time the market can be dangerous. While pullbacks of 5% of more have historically occurred three times per year, trying to time pullbacks can lead to underinvestment and underperformance in an up-market,” Subramanian wrote in a recent note to clients.
The good news, however, is even if you mistime a pullback, sticking it out typically ends well.
“The market is usually up following a 5% pullback — the historical median 1-month, 3-month, and 6-month returns following 5%+ pullbacks are positive, with the market up ~60% of the time following the pullback over each of those time periods,” said Subramanian.
Pullbacks happen, and usually the market recovers, so trying to time them is probably a fool’s errand. And a money loser.