Whenever I share an investment decision, it seems to stir up strong reactions. Some accuse me of market timing, but really, every decision we make about money involves timing in some way. What you choose to do with your funds—whether investing them or building a bonfire of banknotes—is your business.
I believe in assigning a purpose to every dollar I invest, striving to ensure my finances will endure long term. It puzzles me when I see people who have reached financial independence yet continue to amass wealth they will never use. Money is meant to be spent and enjoyed, not hoarded endlessly.
Let’s debunk the myth that only certain decisions count as market timing by examining common scenarios where timing is inherent:
1. Frontloading retirement accounts: If you start the year with a bonus or substantial cash flow, you might max out your 401(k) or IRA early. This decision is influenced by your payment schedule, effectively timing the market.
2. Using a 529 plan: Deciding when to tap into a 529 plan for your child’s education, whether at 18 or later, involves timing, especially with the unpredictability of academic paths.
3. Taking 401(k) distributions: Choosing when to start withdrawing from your 401(k) — waiting until the last possible moment or starting as soon as you retire — relies on personal circumstances and market conditions.
4. De-risking a house fund: If you’re planning a home purchase soon, you might shift your savings into less volatile investments. Your job stability or market conditions might prompt a more aggressive or cautious approach.
5. Investing a severance check: The timing of receiving a severance package and deciding to invest it all in the market depends heavily on personal and economic factors at that moment.
6. Selling a rental property: The decision to sell might come after losing tenants, influenced by changes in your life or shifts in the housing market, which is inherently timing the market.
7. Reinvesting property sale proceeds: After a successful real estate investment, choosing to diversify by investing in different markets or property types is a strategic decision based on market timing.
8. Buying a new home after investment success: Realizing returns from investments and then choosing to upgrade your living situation is influenced by personal milestones and market outcomes.
9. Leaving work to care for a child: The emotional decision to stop working to raise a child affects your financial contributions and investments, timed with family needs.
10. Cashing out after an IPO: Deciding when to sell shares post-IPO and diversifying your investments involves timing the market based on financial milestones and market conditions.
In essence, every financial decision incorporates elements of timing. It’s not just about attempting to predict market peaks or valleys; it’s about making choices that align with your life’s timeline and financial goals. Rather than criticizing others’ choices, focus on your financial path, ensuring your investments fulfill your needs and desires.
Market timing is not just a strategy but a fundamental aspect of financial planning. Embrace it as a normal part of managing your investments and making the most of your financial resources.
