DEFINITION of 'Timing Risk'

The risk that an investor takes when trying to buy or sell a stock based on future price predictions. Timing risk explains the potential for missing out on beneficial movements in price due to an error in timing. This could cause harm to the value of an investor's portfolio because of purchasing too high or selling too low.

BREAKING DOWN 'Timing Risk'

There is some debate as the feasibility of timing. Some say that it's impossible to consistently time the market; others say that market timing is the key to above average returns. A common thought on this subject is that it is better to have "time in the market," than trying to "time the market." This is evidenced by the growth of all financial markets over the long-run, and that many active managers fail to beat the market averages after transaction costs are counted in.

For example, if you take your money out of a stock because of a predicted downturn, you risk the chance of the stock increasing in price before you buy back in.

RELATED TERMS
  1. Market Timing

    1. The act of attempting to predict the future direction of the ...
  2. Price Risk

    The risk of a decline in the value of a security or a portfolio. ...
  3. Market Risk

    The possibility for an investor to experience losses due to factors ...
  4. Scale Out

    The process of selling portions of total held shares while the ...
  5. Gap Risk

    The risk that an investment's price will change from one level ...
  6. Accounting Error

    An error in an accounting item that was not caused intentionally. ...
Related Articles
  1. Investing

    How to Updgrade Your Portfolio in a Down Market

    While it may be tempting to sell when the market turns downward, your long-term results may be better if you leave your money and ride it out.
  2. Trading

    Profit Without Predicting The Market

    Traders who try to predict the future can actually harm their trading options.
  3. Investing

    When To Sell Stocks

    Buying at the right price determines profit, but selling at the right price locks it in.
  4. Investing

    Buy High, Sell Much Higher

    Value investing may seem fool-proof, but it carries more risk than you might know.
  5. Investing

    NYIF Instructor Series: Dollar Cost Averaging

    In this short instructional video Jack Farmer explains what dollar cost averaging is and how it works.
  6. Investing

    How The Stock Market Works

    When you buy a stock, you buy a piece of a company.
  7. Trading

    Choosing Between Dollar-Cost And Value Averaging

    These are two investing practices that seek to counter our natural inclination toward market timing by canceling out some of the risk.
  8. Retirement

    4 Things That Make a Stock a Risky Bet

    Risk is everywhere and when it comes to stocks it can take many forms. From price risk to volatility risk, there’s a lot investors have to look out for.
  9. Investing

    5 Tips On When To Sell Your Stock

    Many investors say knowing when to buy a stock is no big deal: It’s knowing when to sell that’s difficult. Here are five tips to help make the call.
  10. Small Business

    Five Investing Pitfalls To Avoid, According to Investor's Business Daily

    Common sense or common folly? Discover some approaches to circumventing typical stumbling blocks on the road to profitable investing.
RELATED FAQS
  1. Why are mutual funds subject to market risk?

    Find out why mutual funds, like all investments, are subject to market risk, including how the different types of market ... Read Answer >>
  2. How should young people invest in a bear market?

    Learn strategies young investors can implement during a bear market that present the greatest opportunity for long-term investment ... Read Answer >>
  3. What are the primary sources of market risk?

    Learn about market risk and the four primary sources of market risk including equity, interest rate, foreign exchange and ... Read Answer >>
  4. What is the difference between market risk and country risk?

    Learn about market risk and country risk, some examples of each and the main difference between these two types of risks. Read Answer >>
  5. How can I use equity options to protect my stock portfolio from downturns?

    Learn about stock options, how to use them to hedge stock positions and how they could help to protect stock portfolios from ... Read Answer >>
  6. How do I find out my own risk tolerance?

    Learn why risking capital can be risky business, how much risk can you afford and how to determine the right amount of risk ... Read Answer >>
Hot Definitions
  1. Graduate Management Admission Test - GMAT

    A standardized test intended to measure a test taker's aptitude in mathematics and the English language. The GMAT is most ...
  2. Magna Cum Laude

    An academic level of distinction used by educational institutions to signify an academic degree which was received "with ...
  3. Cover Letter

    A written document submitted with a job application explaining the applicant's credentials and interest in the open position. ...
  4. 403(b) Plan

    A retirement plan for certain employees of public schools, tax-exempt organizations and certain ministers. Generally, retirement ...
  5. Master Of Business Administration - MBA

    A graduate degree achieved at a university or college that provides theoretical and practical training to help graduates ...
  6. Liquidity Event

    An event that allows initial investors in a company to cash out some or all of their ownership shares and is considered an ...
Trading Center