One of the worst things a new investor can try to do is to ‘time’ the market. By this, I am referring to the common practice of making frequent trades in order to get in when the market goes up and to get out when the market goes down. Even though study after study has shown that timing the market does not work for most people, hundreds – even thousands – of novice investors still try to do it each year and wind up broke and disappointed. The main problem with this strategy is that it is virtually impossible to predict what will happen in the future – and especially in the future of the stock market.
While it’s true that some individuals do make a killing at this, keep in mind that they are the extreme exception – NOT the rule! Your best bet for long term success is to set up a sensible portfolio with well thought out asset allocation and then stick to it for the long term. The most successful investors over time change only what they HAVE to change and only when they have good specific reasons WHY they are buying or selling an item in their portfolio.
One great tool to grow your assets that avoids timing the market entirely is dollar cost averaging. This tried and true technique is designed to reduce market risk through the systematic purchase of securities at pre-determined intervals and at pre-determined set amounts. Investors who employ this technique often find that they save themselves time, money and effort, so think about adding money to your positions whenever you can.