Excess Returns – Investing Forever Advisory

What could go wrong with trying to time the market?

The opportunity cost associated with the poor timing of initial investment allocations can be significant.
After missing out on a period of good performance some investors may be further compelled to employ additional timing measures that can further exacerbate under-performance.
Market timing, the tactical timing of when to be invested and when not to, although sensible at a high level, is far easier said than done.

Research suggests that less than one percent of professional active manages are “skilled” at what they do.
Given this, the odds of picking a solid active manager is not just slightly worse than a coin toss; in fact, the chances are closer to slim to none.
Therefore, a passive investing strategy may be more sensible over the long run for most investors.

Higher fees tend to correlate with worse investment performance, as suggested by research from Vanguard based upon the historical analysis of active and passive large-cap mutual funds.
Research suggests that the lower the fees, the less likely that a fund will underperform its benchmark (which is good for the investor).
Sound investing comes down to being able to differentiate between what you can control and what you can’t, and then doing your best to focus on the former while still maintaining a solid understanding the risks associated with the latter.
Given that you can control how much you pay in fees, but not whether a fund will outperform, a passive approach has strong merit over an active one.