Four tips on timing stock market

Experts have been preparing us for a deep recession. The Bank of England expects the economic turmoil to last up to two years. Can ‘timing the market’ help me aim for a million?

Stock markets have already begun declining this year. As they fall, I often find myself thinking that if I could just buy in at the right time then, when markets inevitably recover, I could supercharge my returns.

To give myself the best chance of reaching a million, I must remain rational.

Here are four tips I like to keep in mind in order to keep temptation and panic at bay.

Tip 1: Remain diversified

During a recession, one company’s stock could get hit particularly hard and present itself as an unmissable opportunity. However, latching on to a particular stock or sector will most likely increase volatility in a portfolio.

A portfolio that is spread out across a broad range of stocks and shares among other asset classes will likely see some investments outperform others. This is known as diversification.

Tip 2: Persistency

Even when markets fall, contributing into an investment provision at regular intervals can lead to the accumulation of a greater number of shares. This can help lower the average share prices paid in a portfolio over time without the need to time the market in one go.

Tip 3: Be prudent

Timing the market might not be the best idea, but you can still do your own research. For example, avoiding the shares of companies I feel are particularly vulnerable to the current climate might help reduce my downside risk.

With interest rates rising, I have been avoiding companies with excessively high levels of debt.

Tip 4: Be comfortable with chaos

Investing in capital markets always comes with ups and downs. However, I take comfort in the fact that the FTSE 100 index began at 1,000 points in 1984 and closed 2013 at 6,749 points. This gives an average annual growth of 6.57%.

So, despite what has happened in past decades, stocks markets have always been able to recover and make up for lost time.

No stock market crash has ever ended before a recession has technically begun. Nor has one ever ended with interest rates consistently rising. High inflation not seen for 40 years is pushing monetary policy into trend-breaking territory. But don’t be fooled into thinking this market cycle is different to any other.

Source: The Motley Fool