Don’t Try to Time the Market; Just Invest

Do you find yourself unable to invest because you can’t decide on the right time? Do you feel paralyzed by the exuberant ups of your market watch list and in despair over the unexpected lows?

Stop Trying to Time the Market! Just Invest.

Invest regularly and consistently, without emotion, based on analysis, and in accordance with your financial plan.

The reason is time. Time is possibly a stock investor’s most important ally.

The longer your investment horizon, the better off your portfolio will be.

Investing has more in common with running a long-term marathon than with a quick sprint. In fact, ultra-short-term trading for most people is nothing more than gambling. Gambling has nothing to do with investing.

Rather, investing is about being thoughtful, programmatic, and considered in your decisions.

>> See 9 Financial Resolutions for the New Year

Understanding the Long-Term Market Perspective

The financial research firm DALBAR has researched common investor behaviors, including the tendency to sell stocks after a downturn and buy when the market hits all-time highs. This behavior results in portfolios that significantly underperform the market.

DALBAR’s advice: Don’t time the market!

“Rather than following trends during market highs and lows, investors may be better served by staying invested during all stages of the market.”

Here’s another example from Fischer Investments documenting the historical frequency of positive stock returns.

“Over very short time periods, stocks’ direction can be highly unpredictable. Historically, stocks have been positive on a daily basis 53% of the time – little better than a coin flip. However, history also shows the longer the holding period, the greater the likelihood stocks have positive returns.”

The data presents S&P 500 Returns over rolling 1-, 5-, 10-, 20-, and 25-year returns.

Timing the Marketing isn’t a Sound Investing Practice

In case you’re still feeling skeptical, check out these resources:

>> 30 Years of Stock Market Returns, by Calendar Year

Notice the last statement in the summary: “Wealth is built over the long run by staying in the market, investing in quality stocks, and adding more capital over time.”

>> From the Motley Fool, Average Stock Market Return states,

“If you’re looking to build wealth, investing in stocks is an excellent place to start. But to get the best returns in stock investing, use the method that’s tried and true: Buy great stocks and hold them for as long as possible.” 

Don’t Be Afraid to Invest for the Long Term

A long-term investment horizon works. Sadly, people often hold back thinking the market is “too high” or “too uncertain”. Over the short term, that’s true.

But Positive Outcomes Occur More Often Over Long Periods Than Short Ones

In Time, Not Timing, Is What Matters, you’ll find a chart comparing the best-day investments to the worst-day investments. Regardless of the investment day scenario, the overall investment would have shown positive returns.

Note that the hypothetical investors above didn’t pull out of the market, but stayed the course for 20 years. That perseverance helped improve the chances that they would come out ahead. In fact, history has shown that positive outcomes occur much more often over longer periods than shorter ones.

Over the past 91 years, the S&P 500 has gone up and down each year. In fact 27% of those years had negative results. As you can see in the chart below, one-year investments produced negative results more often than investments held for longer periods. If those short-term one-year investors had held on for just two more years, they would have experienced nearly half as many negative periods.

And the longer the time frame — through highs and lows — the greater the chances of a positive outcome. Indeed, over the past 91 years, through December 31, 2018, 94% of 10-year periods have been positive ones. Investors who have stayed in the market through occasional (and inevitable) periods of declining stock prices historically have been rewarded for their long-term outlook.

No Rolling 20-year Period Posted a Negative Return

Here’s the analysis I made based on a chart published in Financial Planning magazine that showed the returns for different asset classes in rolling 20-year periods. 

The first element I noticed was that from 1970 to 2018, there was no rolling 20-year period where stocks (large diversified portfolios) posted a negative return.

Even when breaking down stocks by type – large, small, and non-US the result was the same.

The worst 20-year period for stocks was 1999-2018 where large company stocks returned 5.62% and non-US stocks were up 3.52%.

The average return for the  20 year period for large US stocks since 1970 was 11.66%.

It’s astonishing how much the data contradicts the apprehension of some to invest at all or for those who fear that stocks are always too high to buy.  Time is possibly the most important ally for stock investors. 

>> See Processing Investment Advice, Predictions, and Risks

How’s an Investor to Invest Despite Market Highs & Lows?

The best advice investors can follow appears in this four-page resource guide from Capital Group. It details four keys for prevailing through stock market declines.

1 – Declines have been common and temporary occurences

The charts above attest to the temporary nature of declines.

2 – Proper perspective can help you remain calm

A long-term focus and investment window help put into perspective your goals and risk tolerance, and how you are progressing against your financial plan.

3 – Don’t try to time the market

For more on this topic, go back to the content above.

4 – Emotions cloud your judgement

Emotions are not your friend for investing. The best antidote to emotions is having a financial plan.

Are You Ready to Invest Regularly Rather Than Time the Market?

If you are, Pendragon Capital can help you.

Thanks for reading.

>> Learn About Pendragon Capital Management’s Approach to Investing <<

Note: This blog article is intended for general informational purposes only. Nothing in it should be construed as, and may not be used in connection with, an offer to sell, or a solicitation of an offer to buy or hold, an interest in any security or investment product.

Image credit: Another Year by the Old Clock by Winslow Homer, 1870, published by the Cleveland Museum of Art}}