News outlets are debating whether the UK is going into a recession, officially we’re not there yet but we are undoubtedly in a downturn.

In a previous article on investment planning we explored what the impact of a recession could be on investment markets. This time we explore the challenge of remaining calm and focusing on the long term rather than trying to time the market.

It is easy to think that the best way to extract returns is to ‘time the market’, that is to buy an investment when it is priced low, and to sell it as it gets high. If perfectly executed, this strategy would yield phenomenal return on investment by removing any downward movement in the price. However, if wrongly timed by even a day or two, it can potentially lead to a worse result than not having interfered in the first place. Clearly, timing the market is a risky game, it requires a lot of knowledge and expertise about the markets, as well as a significant amount of luck.

That’s where the idea of ‘time in the market’ comes in. Instead of trying to predict when to buy or sell, the strategy is simply to stay invested in the market over the long term, ignoring the short term ‘noise’ of market volatility. Market movements are difficult to predict, even for seasoned investment professionals. Whilst episodes of volatility in rising or falling markets are completely within the norm, trying to time the ‘perfect’ entry and exit point is extremely difficult and can result in a negative outcome relative to taking a more patient approach as shown in the table below.