Timing risk is a type of risk most often seen in growth asset classes such as shares or property. Values in these asset classes can be volatile, and this volatility means that there is a chance that prices will fall between two time periods.
For example, shares in a company might fall in market value from $10 at time A, to $5 at time B. An investor who bought at time A and then needed to sell at time B will lose 50% of their investment. If the investor does not sell at point B, and prices then rise again to $15 at point C, then the investor has made 50% on their investment. However, the investor has still ‘missed out’ by virtue of the fact that he or she would have made a higher profit had they invested at point B. In this way, it can be seen that the point of time at which a share is bought has a substantial impact on the value of that share.
Timing risk is often managed via the technique of dollar cost averaging. This involves reducing the importance of any single point in time by both buying and/or selling at multiple points in time.