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.


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.

  1. Systematic Risk

    The risk inherent to the entire market or entire market segment. ...
  2. Market Timing

    1. The act of attempting to predict the future direction of the ...
  3. Liquidity Risk

    The risk stemming from the lack of marketability of an investment ...
  4. Mutual Fund Timing

    A legal, but frowned-upon practice, whereby traders attempt to ...
  5. Certainty Equivalent

    A guaranteed return that someone would accept, rather than taking ...
  6. Political Risk

    The risk that an investment's returns could suffer as a result ...
Related Articles
  1. Active Trading

    Would You Profit As A Day Trader?

    Market timing is surrounded by controversy, but does it work?
  2. Bonds & Fixed Income

    Achieving Better Returns In Your Portfolio

    We look at three risk factors that best explain the bulk of equity performance.
  3. Markets

    The Uses And Limits Of Volatility

    Check out how the assumptions of theoretical risk models compare to actual market performance.
  4. Forex Education

    Trading Is Timing

    Learn how to make gains even if you don't get in at the right time.
  5. Options & Futures

    Calculating The Equity Risk Premium

    See the model in action with real data and evaluate whether its assumptions are valid.
  6. Fundamental Analysis

    The Equity-Risk Premium: More Risk For Higher Returns

    Learn how the expected extra return on stocks is measured and why academic studies usually estimate a low premium.
  7. Active Trading

    Market Cycles: The Key To Maximum Returns

    You need to understand the various phases of the market cycle to avoid bubbles and make the best investments.
  8. Charts & Patterns

    Market Reversals And How To Spot Them

    The sushi-roll indicator may help lower the risk of trying to pick market tops and bottoms.
  9. Active Trading

    Market Timing Fails As A Money Maker

    This strategy is popular, but can you do it successfully?
  10. Investing Basics

    3 Key Signs Of A Market Top

    When stocks rise or fall, the financial fate of investors change, as well. There are certain signs that can reveal a stock’s course, and investors don’t need to be experts to spot them.
  1. Over what period should I use dollar cost averaging?

    Dollar cost averaging is a strategy that mitigates the timing risk of investing a large sum of money on a particular day. ... Read Full Answer >>
  2. Can mutual funds invest in hedge funds?

    Mutual funds are legally allowed to invest in hedge funds. However, hedge funds and mutual funds have striking differences ... Read Full Answer >>
  3. When are mutual funds considered a bad investment?

    Mutual funds are considered a bad investment when investors consider certain negative factors to be important, such as high ... Read Full Answer >>
  4. What fees do financial advisors charge?

    Financial advisors who operate as fee-only planners charge a percentage, usually 1 to 2%, of a client's net assets. For a ... Read Full Answer >>
  5. Can your car insurance company check your driving record?

    While your auto insurance company cannot pull your full motor vehicle report, or MVR, it does pull a record summary that ... Read Full Answer >>
  6. Is my IRA/Roth IRA FDIC-Insured?

    The Federal Deposit Insurance Corporation, or FDIC, is a government-run agency that provides protection against losses if ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Gross Profit

    A company's total revenue (equivalent to total sales) minus the cost of goods sold. Gross profit is the profit a company ...
  2. Revenue

    The amount of money that a company actually receives during a specific period, including discounts and deductions for returned ...
  3. Normal Profit

    An economic condition occurring when the difference between a firm’s total revenue and total cost is equal to zero.
  4. Operating Cost

    Expenses associated with the maintenance and administration of a business on a day-to-day basis.
  5. Cost Of Funds

    The interest rate paid by financial institutions for the funds that they deploy in their business. The cost of funds is one ...
  6. Cost Accounting

    A type of accounting process that aims to capture a company's costs of production by assessing the input costs of each step ...
Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!