The market’s meltdown in 2008 has reignited a ferocious debate about the merits of buy-and-hold investing vs. timing the market. When using exchange traded funds (ETFs) as part of your strategy, you do have a third option.
The buy-and-hold side is saying that no one can beat the market over time so sticking to a long-term plan is the way to go. Proponents of the buy-and-hold strategy argue that predicting short market bursts is basically impossible, and they believe that long-term investing provides better numbers. Even considering the recent market downturn, people who invested a long time ago are still significantly up from when they first started investing.
The “market timing” side simply points to the fact that those who held onto their investments are probably regretting it, remarks Silicon Valley Blogger for Wise Bread. This part may be true; many investors lost 40%, 50% or even more during the financial crisis. Some of those investors have had to delay or call off retirement entirely. Making up that lost ground could take years.
Using technical indicators and other economic data, market timers and stock traders utilize online stock trading to make short-term investments and try to capitalize on small day-to-day stock price changes. [Trend Following in Today’s Economy.]
For the average retail investor, buy-and-hold investing along with regular portfolio rebalancing strategy has proved to be a successful combination. Institutional traders or people with large bank accounts do better with stock market timing since they are able to hire professionals, obtain top resources and use advanced strategies. Of course, an investor may have a long-term investment egg and dabble in the markets with some of loose pocket change.