Do you want to potentially decimate your long-term returns? Cambridge Associates new research report finds that getting out of the market too soon could cost you a dear share of your cumulative long term returns.
A new Cambridge Associates (CA) study has concluded that the likely outcome of trying to time the market, such as an exit or a re-entry is a terrible strategy, one that is most likely to be a losing proposition. CA analyzed U.S. and U.K. markets from 1900 onward and released the findings of that research in their report titled "Decades of Data."
Their research finds that investors who take money out of the market too soon or too early, are at risk of substantial underperformance, says the report. The context of this is meant as a guidance for those investors who have become concerned about the length of the current bull market, and the advice, based on research findings, is not to bail out in advance of a downturn in the market.
For one, the attempt to re-enter the market, or to time the re-entry back in to markets at lower levels leads to much lower long term returns, according to the researchers.
Missing just the best two quarters since the turn of the century cut total real returns on U.K. stocks by more than half, by fifty percent.
This report comes right as investor concerns are on the rise, and investors try to decide what to do when the market inevitably suffers a downturn.
The report found that the best periods for investment returns tended to be during concentrated periods, therefore, getting out of the market at the wrong time could "drag down cumulative returns significanlty"
Furthermore, the Cambridge report said the risk of badly timing the market is even more substantial, as a consequence of the equity market's high valuations. “While no investor should be ignoring valuations, becoming too focused on timing an exit has substantial risks,” said Alex Koriath, head of Cambridge’s European pensions practice.
The author, Koriath, suggests that investors should adopt a balance of equities and bonds in a portfolio, "along with assets like absolute return hedge funds and less-correlated private market strategies, including private equity and credit."