"Market timing is going to hurt you both ways": Robin Bowerman message to market timers

Shani Jayamanne: My name is Shani Jayamanne. I'm a Senior Investment Specialist with Morningstar. We're here at the Morningstar Individual Investment Conference for individual investors. And we're here with Robin Bowerman from Vanguard.

Hi, Robin. How are you doing?

Robin Bowerman: Hi, Shani. Good to meet you.

Jayamanne: Good to meet you, too. So, you've just come off stage and you've spoken a little bit about investor behavior and selecting investments with investor behavior. So, what do you think makes investors commit to actions that are detrimental to their total return outcomes?

Bowerman: Well, I think, as investors, we're not wired that well to be rational, unemotive investors. So, when markets are roiling around the way they have been for the last six months with all the unexpected shocks, et cetera, it's not surprising that investors are feeling stressed and anxious about what's happening in their portfolios because they're seeing the sort of results and the performance, and it creates anxiety and therefore people tend to want to react. So, I think the message out of this is take a long-term view, make sure you've got a broad asset allocation, take care of the portfolio's risk level and stay the course over the long term because markets will move through in cycles.

Jayamanne: Exactly. And so, currently people are obviously a little bit reluctant to invest. We've seen people pull back from investing. Back in 2020, we saw a lot of people enter the market, a lot of retail investors. We saw a lot of retail money flowing into the market as well. There's been a pullback from that. And there's obviously a lot of wariness in the market. So, do you think this wariness will reward investors by avoiding the risk that's currently in the market and the volatility that's in the market?

Bowerman: Well, again, I think, it probably comes back to investors having a long-term plan as opposed to I'm going – if the motivation is to invest because the markets are going up and they're going to sell out because markets are going down, the market timing is going to hurt you both ways. So, it's about having a long-term view, set some financial goals and actually, invest in a disciplined way, whether it's dollar cost average into the market, but just sort of have a regular investment pattern as opposed to trying to beat the markets or time the markets around short-term impacts. That's where investors typically – very few people can actually get market timing right because it's two decisions, right? It's, when do I sell out, when do I buy back in, and the buy back in can obviously be a very hard decision. We saw it through the Global Financial Crisis. We've seen a lot of young and retail investors come in through COVID, which is great on one level, but you hope that they will ride through this and just accept that it's a normal market cycle and we should expect it.

Jayamanne: So, the theme of the conference this year is all around portfolio construction, and you spoke in the selecting investments part of the conference. What sort of steps do you think that investors can take within that portfolio construction process to prevent that poor behavior?

Bowerman: Well, I think, it's about having a financial plan, either with an advisor or with people just documenting, writing down their own financial plan and just understanding what your own goals are because I think in markets like this incredibly valuable to be able to pull out a written document and remind yourself why are you investing now. Has anything really changed from last year when you did it, or five years ago? If it has, perhaps you need to change something. But usually, the financial plan will say you were investing for 20, 30 years for retirement. The goals haven't changed. So, why would you take an action like exiting markets right at the moment?