A new analysis from the Property Investment Professionals of Australia has revealed the dangers of trying to time the market for investors, who could stand to lose up to $140,000.

The analysis looked at every capital city market over the past 15 years to determine whether time in the market or timing the market produced the best capital growth. 

The results showed that an investor who tried to time the market could potentially lose nearly $140,000 over the 15-year period. 

PIPA chairman Peter Koulizos said most investors simply don’t have the skills or knowledge to expertly select the best markets to invest in over the short-term. 

“Trying to time the market is not only extremely difficult for most investors, but the transactional costs of buying and selling multiple times, including stamp duty and Capital Gains Tax, eat up a significant chunk of your potential profit,” he said. 

“Most people are only thinking of the potential price uplifts when they try to time a market and naively don’t consider the inherent risks involved in such a market gamble.” 

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Source: PIPA

The research calculated median house price changes in every capital city over the past 15 years, as well as for the three five-year periods within that timeframe.

The top-three performing capital cities over the past 15 years were Melbourne, Hobart and Darwin with median house price growth of between 147 per cent and 106 per cent. 

The best capital city between 2003 and 2008 was Darwin at 91 per cent growth, while from 2008 to 2013 it was Sydney on 41 per cent, and from 2013 to 2018 it was Sydney and Melbourne on 38 per cent apiece.

Mr Koulizos said the data showed no market was the strongest for a sustained period of time.

“Sydney’s market was actually the strongest prior to the most recent price upswing,” he said.

“Likewise, over the past 15 years, Darwin was the third-best performer in the nation – and the best between 2003 and 2008 – even though its market is considered to currently be in a downturn.” 

The research considered the capital growth results for an investor who purchased a $400,000 house in 2003 and then simply adopted a time in the market strategy. 

The results ranged from capital growth of $588,000 in Melbourne to $324,000 in Brisbane. 

However, for investors who tried to time the market but who choose the worst performing capital cities over each five-year period, they could be out of pocket to the tune of $137,701. 

“For argument’s sake, if an investor somehow managed to select the best locations each time, sure, they would be ahead by $386,000, yet by simply buying and holding in many other locations their capital growth result would have been better,” Mr Koulizos said. 

“On top of that, there is the stress of buying and selling three times in a 15-year period during which time market sentiment and conditions can change dramatically as well.”

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