Time in >Timing

June 2, 2022

If you’ve ever had a discussion with me or read anything I’ve written during a period of market volatility, you have likely heard me say that in my opinion, time IN the market beats tim-ING the market. What do I mean by that?

TIME IN the market is quite simply being an engaged participant in the investment process over years – or decades. You are committed to deploying capital into investments over time in a well-thought out and goals/risk based approach. You endure the downs and celebrate the ups – but most importantly, you allow time to pass and allow the natural miracle of compound returns to work in your favor. You may even use down markets to buy “on sale” and are always committed to the longer-term plan.

TIMING the markets involves a never-ending cycle of trying to pick a near-term top (at which point you sell/go to cash), followed by picking a near-term bottom (at which point you buy/deploy cash). You are never fully committed to the investing journey and are putting immense pressure on your ability to be right (twice). However, given that most of us are emotion-driven beings, timing typically results in doing the opposite of what is most logical (ie: selling out in a down market, or buying in an up market).

In my opinion, trusting the process and staying invested – and resisting the urge to get in and out (over and over and over) – is the smartest way to build wealth over time. But of course, that is easier said than done. In times of market volatility, we feel the need to do something – anything – to offset the anxiety and uncertainty we feel. Sometimes those urges can be best eased by cold-hard facts, charts, and statistics.

An article written this week (by Charlie Bilello, who does an incredible job sharing insightful data and charts both on Twitter and in his newsletter), entitled “The Biggest Mistake an Investor Can Make” adds some statistics to back up my assertion. I highly suggest you read the full article but here are the highlights:

  • Since 1990, the S&P 500 has returned 10% per year annualized. During that same time period, there have been two 50%+ bear markets and for over 90% of the time, the markets were in a drawdown (ie: experiencing negative returns)
  • When it comes to investing, you can’t have the long-term gain without the short-term pain
  • When volatility is high, it is easy to panic (timing!). However, the S&P 500 returns are highest following times when volatility was highest
  • Every bear market and recession in history has been followed by an economic expansion and new all-time high in the future. It was just a matter of time
  • The biggest mistake an investor can make is to turn temporary volatility into a permanent loss

Perhaps my favorite line from the article (a quote from Charlie Munger of Berkshire Hathaway fame):

“The first rule of compounding is never interrupt it unnecessarily”

I know volatility feels awful. I know it is hard to see negative numbers on an investment report. I know it feels like nothing will ever improve. But every other time, it has. And it likely will this time too. Trust the journey and put in the time.

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