Time in the market beats timing the market

For investors with money in the market, many may be wondering if it’s time to head for those proverbial hills. Others who have stayed in cash may be wondering whether, because prices are now high, they’ve missed out on the spoils of the last ten years.

But, as a general rule, time in the market beats timing the market. And, allowing participation to outshine aiming for perfection is a useful tool for looking rationally at your portfolio.

Some investors have an eye toward trying to time when this bull market will do an about-face. It’s normal: We all want to have “the best” timing. Just this week my dentist asked me, “Wes, shouldn’t I get out now, wait for a correction and then jump back in?”

Herein lies the problem. We don’t know when a correction or full-on bear market will happen, and we don’t know how long it will last. Plus, we know that even if we have perfect timing once or twice, we won’t always have it. We can’t control precise and perfect timing, but we can control how long we invest.

I have an illustration of this point. It’s my favorite way to get to the nuts and bolts of what perfect market timing would look like compared to the worst timing, and then compared to simply sitting in cash.

Let’s walk through the numbers.

Say you have $10,000 for either investing or keeping in cash. Now let’s use the S&P 500 total return index to see how this amount would grow over a particular time. Each period we’ll look at is particularly relevant for the “timers” out there; the years we’ll look at were all on the precipice of a stock market correction.

Of course, it takes time to recover from any downturn. So, our data points show what your $10,000 would be worth as of Oct 31, 2019, based on each of our starting points. Our rundown comes courtesy of a 2015 study from Charles Schwab, that our research team recently brought into 2019.

We’ll start with

Dotcom bust from the 2000-2002 period (19 years ago)

• Oh yes, we all remember the tech crash. It was massive – the S&P 500 went down more than 49%.

• Getting in the market with “perfect” timing resulted in growth to $55,300.

• Getting in with the “worst” timing resulted in growth to $29,100.

• Cash grew to a paltry $14,000.

• Here, investing at the “worst” time bested cash by 108%*

*($29,100 is 108% more than the cash return of $14,000)

Here’s another one:

Investing during the 2007-2009 period (12 years ago)

• Just like the tech crash, the Great Recession is fresh in our memories and not soon to be forgotten. At the nadir, the S&P 500 was down 56.8%.

• During this time, “perfect” timing produced growth to $56,000.

• The “worst” timing (Oct 2007, to be precise) produced growth to nearly $25,000.

• Cash was practically flat at $10,800, as interest rates were near zero during this span.

• Investing at the “worst” time beats cash by 131%.

Now for the short run – you invested at the end of last year.

• We had a full 20% correction between Sept 21, 2018, and Dec 24, 2018.

• “Perfect” timing would give you $13,100.

• The “worst” timing would give you $10,600.

• Cash was at 2% over the past year, giving you $10,300.

• Even here, the “worst timing” still beats cash, this time by 3%.

So, here we are today in a world of uncertainty. If we use the past as a guide, investing beats cash if you participate in the market.

Trust me. I hear you. “But still. Shouldn’t I get out, Wes?”

Friends, my advice for most investors with a long time horizon, is typically to stay the course. A bull will become a bear that becomes a bull again. And, the numbers above are from real data about timing versus cash. Let that assuage your worries of “timing it just right” or “missing the boat.”

And consider this question: Are you thinking about your money over the next year or two? If so, I invite you to take a longer view for the right context. Five years? Great. Ten years? Even better. Twenty years? Now we’re talking.

Wes Moss has been the host of “Money Matters” on News 95.5 and AM 750 WSB in Atlanta for more than seven years now, and he does a live show from 9-11 a.m. Sundays. He is the chief investment strategist for Atlanta-based Capital Investment Advisors. For more information, go to wesmoss.com.

Disclosure

This information is provided to you as a resource for informational purposes only and should not be viewed as investment advice or recommendations. Investing involves risk, including the possible loss of principal. There is no guarantee offered that investment return, yield, or performance will be achieved. There will be periods of performance fluctuations, including periods of negative returns. Past performance is not indicative of future results when considering any investment vehicle. This information is being presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. This information is not intended to, and should not, form a primary basis for any investment decision that you may make. Always consult your own legal, tax, or investment advisor before making any investment/tax/estate/financial planning considerations or decisions.