Settle in, as it’s foolish to try and time the markets

• Published date: 20 April 2024
• Publication title: Weekend Herald

I’m wondering if some of the gains should be siphoned off to safer investments such as term deposits etc

I am 67 years old and have three years’ worth of spending in term deposits as per your recommendation. The rest of our funds are in conservative, balanced and growth funds.

A: Go for a walk on the beach, read a novel, have lunch with friends who are not interested in financial stuff — do anything but read and talk about where the markets might go. And leave your investments alone!

That assumes that you’ve set things up the way I recommend, with money you don’t expect to spend for 10 years or more in the growth fund and three-year-plus money in the balanced fund. If not, you might want to move money — ideally in three or four monthly steps — to make that happen.

But beyond that, ignore market movements. There might indeed be an “almighty crash” coming for all we know, but even if that happens, there’s a very high probability the markets will have recovered by the time you spend the money, and you’ll have considerably more than if you had reduced your risk.

I feel like a broken record saying this, but it is foolish to try to time markets. Research shows people who move in and out of share funds do worse than those who stay put.

For example, US research firm Dalbar found that over the 30 years ending December 2023:

• The average share fund investor earned 8 per cent a year.

• The S&P500 market index average return was 10.15 per cent.

A $100,000 investment at the start of 1994 would have grown to just over $1 million for the average investor, but $1.8m in the index — a huge difference.

The difference will be partly because of fees, but also because people moved their money in and out of the funds — no doubt trying to guess, like you, when it was a good time to switch.

Other research has shown the investors who move their money most often do worst. Stick with your plan. As hugely successful investor Warren Buffett puts it: “Our favourite holding period is forever.”

By the way, while term deposit interest rates still look attractive, every expert is expecting rates to fall some time in the next year or two, now that inflation is easing.

Quite contrary

Q: I haven’t seen anyone comment on this and would like to get your opinion. I invest in US companies through Hatch.

I try to keep around 30 to 40 per cent of my share portfolio in cash. In times of uncertainty, like trouble in the Middle East, the cash reserve can go as high as 75 per cent. This places me in a...