This is actually better if you don’t know much…
The problem with human beings is that when they think they know about something, they start taking riskier decisions thinking they can “control” the risk by their mental power ;-). Therefore, we have a tendency of diminishing a real risk simply because we think we know enough that it won’t happen to us (after all, it always happens to the others… right?).
The more we know about the stock market (especially if we have been able to make money on the stock market in the past), the more we tend to complicate our investing strategy thinking that we can time the market for example.
So People are now trying to figure what will be the best timing to invest their money in the stock market in order to benefit from the boost but not lose a penny in the meantime. Since they have been right about the previous crash when they sold everything last summer, they think they can be right again.
I read an interesting article about this the topic of market timing and how to make money on the stock market. Actually, making money on the stock market is quite easy; simply invest in index funds or ETF’s on a regular basis… You will never hit the bottom and you will never buy too late. You will simply be invested all the time. How does this reflect in the real world? Let’s take the example of the Great Depression back in 1929. Do you think that one could have make money on the stock market back then? Well they could!
If you look at the Dow Jones Index during from 1929 to the end of 1935, its yield was a big fat MINUS (-) 47%. However, someone who would have invested on a regular basis during those 6 years without trying to time the market would have made a big fat PLUS (+)45% before dividends.
image source: flickr
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