TIME IN, not TIMING, the Market
Erratic, unpredictable and volatile are just a few of the adjectives that come to mind when describing the stock market. The US stock market makes up roughly 55% of the total global market value, or $51 trillion. That $51 trillion is spread across more than 4,000 publicly traded companies with constant valuation changes every day that the markets are open. But the adjacent chart illustrates another adjective that describes the US stock market: resilient.
As the chart shows, the “up and to the right” stock market trend has persevered, even when the U.S. economy has faced an uphill battle. Over the past century, the U.S. has maintained and even grown its status as a powerhouse in the global economy, rewarding investors who remained steady with a tried-and-true investing approach.
Alternatively, being able to correctly time (and capitalize on) market movements on a short-term basis is nearly impossible for most investors. Sure, you may get lucky here and there, but consistently predicting market dips is unsustainable over the long term. Say you turn bearish and move to the sidelines/raise cash to redeploy on some future dip—a psychological tug of war ensues. You wait for the anticipated dip, but if/when it does, when exactly do you jump back in? What if the market rises another 5% while you are deciding? Do you swallow your pride and redeploy the cash you had moved to the sidelines?
The second adjacent chart illustrates the strategy of time in the market versus timing the market. Ask yourself, is a gut feeling of a market correction worth deviating from your investment plan? There are significant opportunity cost risks associated with raising cash in hopes of redeploying at lower prices. The U.S. stock market is open on average 253 days a year—around 2,530 days over the course of a 10-year period. Look at the difference in a $100,000 initial investment if you missed the ten best positive days over the ten-year period!
In short: (1) identify your investment objectives and goals, (2) stay the course, and (3) don’t let your emotions get the best of you. Market dips and corrections will happen, and some will be stomach jerking, but keeping those three things in mind can provide confidence in the plan set forth for your financial future.
— Brant Jones, CFP®