Timing is Everything...Except in Investing

Clients of Oxford are familiar with our belief that market timing is a fool's errand.  Market timing refers to the (very mistaken) belief that there is some sort of investing crystal ball that will allow an investor to get out of the market right before things get bad, and then get back in right before the market goes back up.  While intellectually appealing, the entire idea has been proven to be a failure.  It turns out that investor myopia gets worse at precisely the wrong time.  

Fear of investing At The Top

Most investors have heard that the stock market has historically returned more than 10% per year going back to 1926.  Returns like that can certainly help grow your portfolio.  In fact, at a 10% annual return, your portfolio will double in a little over 7 years and will continue to double every 7 years thereafter.  So $10,000 would become $20,000 in 7 years, $40,000 in 14 years, etc.  Most investors would be thrilled to experience this type of growth.  In fact, any investor can achieve these results with enough time and patience.

Despite the above, many investors are still concerned about investing their money at "the top" of the market.  This is a very real risk.  This topic is on investors' minds right now, as the S&P 500 is trading near all-time highs and has notched an incredible 53 new record highs in 2021 alone.  Surely one can't achieve 10% returns if they buy at the top of the market, right?

Worst Market Timer Ever

Let's run a little experiment.  Let's say you have $10,000 to invest, but you're convinced you have bad luck and terrible timing.  Going all the way back to World War II shows that the worst possible month to invest would have been October 2007.  The market had just closed at a new all-time high on October 9th, and was poised for a dramatic decline (even though almost nobody predicted it).  From that point forward:

  • the market began a decline that would coincide with the US housing market meltdown
  • Lehman Brothers bankruptcy in September 2008
  • followed by the "Great Recession" that engulfed the entire planet

In all, the stock market would decline 57% from October 9, 2007 to March 9, 2009.  It would take until 2013 for the market to recover to its 2007 levels.  The decline was so bad that the media referred to the 2000's as the "lost decade" because there was no gain in price level of the S&P 500 from 2000-2009.

If you had invested on October 9, 2007 you would have felt pretty bad watching that global financial crisis unfold, decimating your portfolio.  You would have been awfully tempted to sell out at multiple points along the way.

But what if you never sold?  Instead, you just stubbornly hung on throughout the worst economic crisis since the Great Depression.  What would have happened to your portfolio (analysis assumes dividends were reinvested)?

  • By August 2012 (less than 5 years) your average annual return would have turned positive.
  • By July 2021 your average annual return would have jumped to 10%

Did you catch that last line?  10%?  Does that number ring a bell?  It just happens to be the same 10% annual return that stocks have historically delivered to investors.  And you would have achieved it even though you invested on THE WORST POSSIBLE DAY IN THE PAST 75 YEARS!

Said differently, even though you were the worst market timer anywhere, you still managed to get your 10% annual return on stocks.  You just had to be patient and disciplined.

The lesson here?  Time in the market is far more important than timing the market.

Focus on Goals, Not Indexes

Market timing does not work.  Sadly, even many "professional" investors continue to persist in this myth, even going so far as to suggest to others that they can consistently make these calls ahead of bull and bear markets.  In reality, the only kind of bull these charlatans know is the bull coming out of their mouths. 

What you really need to do is focus on your goals, and then build a disciplined investment plan that helps you achieve those goals.  You've already seen that the market can be your friend in the long run; you simply need a plan and the discipline to stick to that plan in good times and bad.

We've been helping clients prepare for, and thrive in retirement for over three decades.  Our clients' continued financial success is exceeded only by their success at the game of life.

When we build retiree portfolios at Oxford, we seek a balance between Stability and Growth following the principles outlined in our proprietary Power of 5 Investing system. Our goal is to help clients achieve inflation-beating growth in their wealth, while managing through market downturns, ultimately helping clients leave a legacy to the people and places they love.  Our system has been battle tested in 25+ years of market ups and downs and is ready for whatever the market can throw at it.

If you're concerned about recent market highs and deciding if now is the right time to invest, give us a call.  We're happy to offer perspective and a second opinion.  Click on the link below to schedule a free Get Acquainted meeting.