Your Continuing Education -- Market Timing is Silly
Lots of stuff happening in the universe right now. Lucky for you, I'm going to avoid commenting on anything related to the NFL, standing or kneeling, and judging the overall patriotism of certain individuals. You should be able to find that stuff on your own.
Market Timing Still Doesn't Work
In today's issue of Your Continuing Education, we focus on why market timing is nearly impossible and, more importantly, not worth the hassle.
I think one of the most misunderstood concepts in investing between investment professionals and the average investor is that most professionals have an absolute understanding that markets cannot be timed with any reliable process. The average investor, for some reason, thinks it can.
In this age of the internet, information is literally everywhere. As an investment manager, not only does your opinion and analysis have to be right on the timing of an investment, but it has to be different than the prevailing opinion of the market. It's nearly impossible to be right and be different with any sort of repeatable process.
If you invested at the very top of the market in 2007 and somehow proceeded to stay invested during the blood bath of the financial crisis (i.e., the worst timing to invest in recent history)...guess what? As of today, you would have doubled your money, with an average annual return of just over 7% for the last 10 years despite the historical collapse of the market.
Here's Michael Batnick from Ritholtz Wealth Management writing about what normal investors should do when the market hits an all-time high:
...and here is another great piece from the Ritholtz team (this time Ben Carlson) on the social proof that investors are constantly striving for when they look at the market returns.
This is so incredibly important because I think it's the biggest chasm between people becoming successful investors and failing miserably.
If you're sitting on the sidelines looking for the "right time" to start investing, the old Teddy Roosevelt quote, paraphrased, says that the worst thing you can do right now when it comes to your investments is nothing.
In any moment of decision, the best thing you can do is the right thing, the next best thing is the wrong thing, and the worst thing you can do is nothing. ~Theodore Roosevelt
The Right Time to Invest is Yesterday
The only timing I'm interested in is getting invested as quickly as possible. I want my investments working as long as they possibly can, and I'm not going to weigh different options of when the ideal time to start is.
Here is a page from Charles Schwab that illustrates the difference in returns for those that time the market perfectly, those that time it perfectly wrong, and those that never get started. Even investing in the markets at the very top of the market (i.e. the worst possible time) gets you better results over the long-term (a 20-year period) than staying in cash.
The biggest enemy for any of us when investing is ourselves. Our constant desire to be right, or more appropriately, our palpable fear of being wrong, creates the worst possible backdrop to make important decisions about our investments.
The biggest asset you have is time. Stop trying to be perfect, talk to a financial advisor, and start letting time and compound interest be your friend.
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