News & Commentary

Another market-timing warning – with a twist 04 Jun 10


Smart Investing has long discussed the dangers of market-timing – that is, trying to pick the best times to buy and sell shares.

Even highly-experienced investment professionals rarely manage to succeed in consistently timing the market over an extended period.

A warning about the folly of market-timing should, of course, take in the buying and selling of Exchange Traded Funds (ETFs).

The attributes of ETFs include low costs, widely-diversified portfolios from tracking a chosen index, tax-efficiency, and sheer ease of use – by being bought and sold on the market, just like shares in individual companies.

But while this ease of use is one of the key drivers behind the global popularity of ETFs, it could tempt some investors to try to move rapidly in and out of the market in an attempt at market-timing.

Significantly, Australian financial planners can be expected to play an increasingly crucial role in advising clients about responsible strategies for buying and selling ETFs.

This will be attributable, in part, to the federal Government’s proposal to bar commission payments to advisers in relation to retail financial products. Many financial planners will inevitably respond to the measure by advising about a wider range of currently non-commission products – including ETFs. (Smart Investing discussed this point on April 30).

Advice from financial planners in regard to ETFs may include warnings about the potential perils of market-timing. And advisers typically tend to emphasise the desirability of focusing on the long-term.

 

 

* Written by Robin Bowerman, Head of Retail at Vanguard Investments Australia.
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