Timing Risk

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.

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