Time IN The Market vs TimING The Market

Time IN The Market vs TimING The Market

There is an old adage in investing that goes: the trick to investing is time in the market, NOT timing the market.  Essentially, what this saying aims to teach is that investing isn’t a timing or guessing game.  In over 200 years, no one can point to an investor who has consistently and accurately “timed” the markets.  The interesting thing about that, though, is we all know this to be true, yet everyone attempts to “time” the market still.

Part B of that statement is that it is time in the market that distinguishes the winners from the losers.  I try to hammer this point home as much and as often as I can.  Sometimes the simplest lessons in life are the toughest to endure.  However, when it comes to investing, our natural fear and greed biases rear their ugly little head and override what we know to be true.

The concept here is truly the simplest in the world to follow.  You, me, or Warren Buffett will not guess when the markets will have their next selloff, and news flash, just because we are at all-time highs is not a reason for a selloff.  Not only am I not that smart, but there are millions of variables that go into market pricing and trends, making it impossible to accurately predict. 

Case Study

For instance, let’s look at a quick case study (oy that sounds painful).  The S&P 500 20 years ago was valued at 1207.  Since then, we have had the ’08 housing crisis, Brexit, the Crash of 2010, threats with China, multiple wars, COVID, and at least one President you surely disliked.  Having timed the market and foreseen these things coming would put you on an omniscient level.  You would have guessed when these unguessable things would happen, when they would happen, when the markets would react, and also when they would have to rebound.  In many of these cases, that means not only predicting the future, but investing in times of the utmost uncertainty, again extremely hard to do.

Now, you could have attacked investing that way, maybe gotten lucky once, but to call this a predictable and wise way to invest would be lunacy.  For context, the S&P 500 today is hovering around 6800 points.  Said differently, the S&P 500 is 5.6x higher than it was 20 years ago.  Option B is you could have played into the mantra of this blog and done nothing, and received a 560% return on your investments in 20 years!

Question

With that context now in your mind, I’ll ask you which method of investing you would advise someone else to do.  Is it to get out and in the markets on quite frankly their gut feeling, or some random article they read that scared them?  Or do you think the more prudent method is to build a portfolio that doesn’t need to be touched in good times or bad and ride through the ups and downs?

I sure as heck know my answer; the question is, what is yours?  Furthermore, the interesting thing is, I’m sure almost everyone reading this agrees with my sentiment.  That said, why are we so inclined not to listen to our own sound advice?  Why do we constantly fight the urge to do what we know is right, and make excuses that this time is different?

Answer

I believe the answer is our innate fight or flight response system that has candidly led the human species to flourish over thousands of years.  The thing to remember is that our prehistoric brains haven’t caught up to modern-day market volatility, as they are still stuck on defending ourselves against a saber-tooth tiger. 

Formula

This leads to the natural question of what the formula for success is.  For starters, it is proven that we are terrible at managing our own money for the reasons stated above, and thus, I naturally am a huge advocate for working with someone when it comes to investing.  I also believe that unless you are actively trading for yourself, too much news can be a bad thing for your investments.  We are so inundated with clickbait and sensationalized stories these days that we have to remember that most news is entertainment, opinions, or half a story.  Finally, investing in the markets is a long game, not a get-rich-quick mechanism.  So do yourself a favor and simply take the long view.

Hope you enjoyed this article, and know we are here for you through thick and thin.  Stay wealthy, healthy, and happy.