The issue with timing the market is that time in the market creates long term returns. If you miss out on just a few of the best days in the market, your long term returns are severely affected.
Here are three things everyone can do to increase long term returns:
- Stay invested: By staying invested, you reap the long term rewards stocks offer, i.e. inflation protection, growth alongside the economy. These three things are the essence of investing because long term returns depend on them.
- Add to your portfolio and reinvest: The benefit of constantly adding to your portfolio is that you are ready to buy throughout the cycle, which means that you will also buy at a low market point which is where you will find the highest returns.
- Invest with no risk: The third thing you can do is to only invest in stocks or other asset classes that offer you your required return at no risk. For example, my required rate of return per year for stocks is at least 20% and I don’t invest in a stock if the return is lower. The no risk part means that in the long term, there is practically no possibility of permanent capital loss as sooner or later, the value of the investment will be recognized.
Investing is something inherently easy, the only thing to do is find a few investments that offer a long term satisfying returns at low risk.