Consistent Investing is the Key to Long Term Debt Protection

The best way to ensure that you will be able to enjoy a debt free retirement is to begin your preparations far in advance. This requires a good deal of discipline because it means forgoing some immediate pleasures in order to prepare for an event that is often decades away. However, the payoff is well worth the effort. I don't believe that there has ever been a retiree who has wished that they would have put less away for retirement. The question then becomes; what is the best way to save money for the long term?

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Many people have resorted to a method of stock market investing, called market timing. Although there are several variations of this method, the basic idea is to place money into funds that are about to hit an upswing and then to remove the money before the market price dips down. In theory this would allow an individual to hit all the highs and avoid all the lows. The problem with this investment style is that on average it is not very effective. People do not generally remove money from a fund until the performance begins to slip, and conversely they do not generally transfer moneys into a fund until the performance begins to rise. As a result, in many cases people get the opposite effect than they are trying to achieve. They end up buying high and selling low. It is prudent to monitor trends and events and occasionally adjust your portfolio accordingly. However, attempting to continually time the market will often do more harm than good.

The best way for an individual to ensure that their investments will provide the maximum amount of debt protection is to make consistent investments over a long period of time. Here is an example to illustrate this point. During a 30 year period from 1963 to 1993 the average annual market return was 11.83%. However, if you removed the top 90 days of trading, the average return plummeted to 3.28% Is it possible to accurately time the market to forecast the best 90 days out of a 10,950 day span? It is very unlikely that this would happen.

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About the author:

Mark Carney is a professional consultant with First American Debt Consolidation and Loans, a debt consolidation service specializing in financial education, credit counseling, and debt management services nationwide.