Timing the market

Trying to predict what the market is going to do in the next six months or year is near impossible. You are unlikely to predict the top or the bottom of the market with any real accuracy so there is little point in trying to time it. Your energy will likely be better spent identifying quality stocks to invest in.

Is there any point cashing up your portfolio in anticipation of a crash? Firstly, you may sell your stocks too early and watch the market continue to move higher, sometimes for years. Or you could delay buying stocks for the same reason, potentially missing significant gains.

There is always plenty of market news and reasons experts can give for an upcoming crash, but it pays to remember there is always some bad news somewhere and the most powerful human emotion is fear.

Investors also often forget that when selling up a portfolio (and planning to buy the shares back again) two lots of brokerage will be incurred, in addition to the capital gains tax consequences. Each of these cut into returns.

Energy spent trying to predict when a correction will come and how deep it will be or picking the bottom of a decline could be better spent looking for undervalued stocks and monitoring your portfolio.