Time in the Market > Timing the Market

A good reminder about trying to time your investments

“Time in the market beats timing the market.”

It’s one of the market’s longest-used tropes, and for good reason. Much ink has been spilled explaining why this is the case, and perhaps none has done a better job of distilling this into an easy-to-understand format as our friends at Visual Capitalist.

Earlier this year, they showed that over a 20-year period, simply staying put — that is, not jumping in and out of stocks in an effort to try to time the market — was by far the most financially rewarding strategy.

Take a look:

As you can see, a $10,000 investment in the blue-chip S&P 500 Index would have returned 197% over the period if you missed the 10 best days, or 5.6% a year.

Compare that with the 548% returns (9.8% annually) you would have made by sitting on your hands — a period that includes the global financial crisis from 2007 to 2009.

(Interestingly, as you can see in the bottom panel of the previous chart, 7 of the 10 best days over that time frame occurred during the financial crisis. The other three were during the COVID crash in early 2020.)

The smart folks at Visual Capitalist conclude:

As historical data shows, the best days happen during market turmoil and periods of heightened market volatility. In missing the best days in the market, an investor risks losing out on meaningful return appreciation over the long run.

But why am I telling you this today, the last day of November in 2023?

Well, to borrow another perhaps-hackneyed-but-often-quoted phrase, “The best day to plant a tree was 20 years ago. The second-best time is now.”

Let’s apply this Chinese proverb to the world of finance: If you’ve never invested before, you might think you “missed it.” But you haven’t. Whether you have $100 or $100,000, the best time to start investing is today.

We’re in an interesting time in the markets. No doubt, the U.S. economy looks to be on shaky footing, a topic I’ll discuss in my next post.