Understandably, the current bull market in equities has some market pundits signalling a downturn is near and that company earnings do not justify equity valuations. Sure, there is a possibility these views could be true, but I guarantee you these same opinions were put forward three years ago too. If you acted on these beliefs and sold out of equities altogether, you missed out on a near 40% surge in Australian and US equity markets respectively, as measured by the ASX200 and S&P500.

No doubt the idea of buying in and out of equities and ‘timing the market’ to pick the top and bottom is exciting. However, I assure you it is dangerous and very few in history have shown the ability to consistently execute on this. For example, let’s assume you are building up a cash stockpile to eventually invest in equities when the downturn comes. Although, at what point do you pull the trigger? When the market is down 20%? 30%? What if it only falls 15% and then starts rising again? You get the picture.

Waiting on the sidelines is also dangerous because missing out on some of the few best performing days can have terrible long-term consequences on your outcomes.  To quote Warren Buffet, “The risks of being out of the game are huge compared to the risks of being in it.”.

If you missed the best 10 days in the Australian Sharemarket from 2004 until today, your total return would be reduced by around 37%!

To capture these returns, it is therefore important to implement an appropriate asset allocation strategy and remain fully invested throughout the various market cycles. Additionally, periodic rebalancing should take care of “buying low and selling high” over the long term, however not buying at the bottom and selling at the top.

Although market gyrations over shorter periods can seem worrying, it is comforting to know that a strategy of riding it out by remaining invested is less stressful than trying to time the market. By reducing the rollercoaster of emotions and removing unnecessary fear or greed, your investments are provided with the best chance to earn the compounding returns required to accelerate your wealth accumulation for current and future generations.