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“Timing is everything”. There are many different variations of this quote, however – whether it’s planned or by chance – the impact of timing can be the single difference between celebrating success and languishing in failure. Here’s why it’s not a good idea when it comes to retirement planning.

In the investment industry, it’s instilled in us that it’s impossible to consistently and successfully time the market. History is proof of this as there have been many failed attempts to do so, and while there are a relatively small number of successful investors, they have also been wrong a large percentage of the time. When it comes to retirement planning, that can be disastrous.

Here are two key reasons why trying to time the market is dangerously risky:

1. Timing risk

‘Timing risk’ is defined as “the speculation that an investor enters into when trying to buy or sell a stock based on future price predictions.”

When a portfolio manager purchases a stock, they do so with the intention that there will be a positive return at some future date. This future date is undefined and mostly in direct contrast to the thinking required when managing your own retirement savings and investments. You have your own specific needs and events, and your own desired date of retirement. And these may, of course, change for you – one of many reasons why it’s important to review your personal retirement plan with your financial planner regularly.

2. Life-cycle risk

In 2019, South Africa won the Rugby World Cup and the entire country celebrated. In fact, some are still celebrating. This was truly an exceptional achievement and came at a time when a generally dispirited nation needed inspiration. As the memory of this event remains front of mind for many South Africans, the same memory will linger as a sore point for English rugby supporters for years to come. Why is this relevant? The English rugby team actually gave us a great example of how not to plan for retirement.

Overall, the last 5 years have not been kind to the South African equity market. Apart from a positive turnaround in 2017, we have seen local stocks underperform South African bonds and cash in 3 of the last 5 years. So, how do we ensure that our retirement savings do not perform like England in the Rugby World Cup? England had a stellar performance throughout the majority of the tournament, only to collapse at the end when it counted the most.

The question we need to ask ourselves is: if we cannot successfully time the market over the short term, when it can have such a large impact on our retirement value, are we supposed to leave our future way of life at the mercy of where the market is in ‘the cycle’? The answer is no.

“If we cannot successfully time the market over the short term, when it can have such a large impact on our retirement value, are we supposed to leave our future way of life at the mercy of where the market is in ‘the cycle’? The answer is no,” says Darren Burns, Head of Investment Solutions at Glacier Invest.

What to do instead of trying to time the market

  1. Ensure that your retirement savings plan includes investments in a diverse range of funds

    This helps to reduce your risk when there is market volatility, since all of your eggs aren’t in one basket. Speak to your financial planner about when you’re planning to retire, and how much you hope to live on when you do. Tell them about your future plans: do you want to immigrate, do you own property or are you renting, do you have significant debt or responsibilities to dependants?

    All of these things help a financial planner tailor a retirement savings and investment plan to suit you, that’s designed to deliver against your needs and goals rather than to try predict, time and ‘beat’ the markets.

  2. You can’t save too much… really

    The risk of not having enough money at retirement, or you outliving your retirement savings, is real. While good financial planning can certainly help reduce these risks, nothing will help more than to save as much as you can, and – when you think you’re saving enough – save a little more. If you focus less on market volatility and more on putting as much as you can away each month into your retirement savings plan, trying to time the market will become less and less of a concern.

  3. As you near retirement, talk to your financial planner about reducing the risk in your portfolio

    The exact point at which you should begin this process and at what rate, is personal. While different investors require different levels of income to subsist, the general idea is to increase certainty as life becomes more uncertain. Speak to your financial planner about this when you’re around 5 years away from when you plan to retire.

Please consult with a financial planner before you take any action regarding your savings and investments.

Glacier Financial Solutions (Pty) Ltd is a licensed discretionary financial services provider, trading as Glacier Invest FSP 770.

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