Time or timing…which is more critical to investment success? We would say time in the market is more important. Investors would all like to buy near the bottom of the market declines and sell near the high, but no one can accurately predict when those opportunities will present themselves. It is only with the benefit of hindsight that these highs and lows become evident, so staying invested in the market is critical to capture the benefits. We often hear investors say that their market anxiety keeps them on the sidelines to save them pain, but it may also ensure they will miss the gain. Historically, downturns have been followed by eventual upswings, but knowing when that is going to occur is impossible to predict. This is why it is imperative to understand how much stock market exposure is appropriate for you, diversify your portfolio so that your lifestyle isn’t impacted by market swings, and avoid trying to outsmart the market.
Here is an example of what could have happened if an investor tried to outsmart the market vs. giving their investments time to perform. If you had invested $1000 in the S&P 500 (excluding dividends) on January 1, 2009 and left it there 10 years, until 12/31/18 it would have grown to $2775 or more than 10% a year. Had you tried to time the market and missed the 20 best days during that ten-year period, your investment would be worth $1228 or a little over 2%. Had you missed the 40 best days your $1000 would only be worth $712. The conclusion: time in the market is much more important to your investment success than timing the market.
(Sources: Thomson Reuters and S&P 500 index)