By Time in the market beats timing the market is a well-worn phrase. But don’t dismiss the underlying suggestion. There’s a reason why this saying is so popular.
In investment circles, there is a phrase that has been passed down like Grandma’s greatest recipe: “Time in the market beats timing the market.” And, as tired as that line may sound, it has weathered the test of time for good reason.
The truth is that predicting what the market will do next is a fool’s errand. No one, no matter how many books they’ve written or how many CNBC appearances they’ve had, has consistently and properly timed the market over the long term.
Despite this, a large number of investors continue to attempt to game the system.
The real winners in investing aren’t those who predict the next drop or peak. They’re the ones that stay inside, weather the storms, and allow their money to grow.
Why timing doesn’t work
To be honest, this concept could not be easier to understand. You, me, and Warren Buffett are all flying blind when it comes to predicting when the next selloff will occur. And no, the market reaching an all-time high does not imply a crash is imminent.
There are simply too many variables: economic data, elections, foreign conflicts, new technology—you name it. Millions of moving parts propel markets forward, and no one can predict what will happen next.
A twenty-year reality check.
Let’s put things into perspective. Back in 2003, the S&P 500 was trading around 1,200. Let’s fast forward 20 years. We’ve been through the 2008 financial crisis, Brexit, flash crashes, geopolitical tensions, COVID-19, and enough political turmoil to last a lifetime. Nonetheless, the S&P 500 is approaching 6,800, which is nearly 5.6 times more than it was 20 years ago.
If you had hopped in and out of the market to avoid those occurrences, you would have required a crystal ball to predict not just what would happen, but also when and how the market would react. Oh, and when to leap back in.
Which move is better? Stay put. Ignore the noise. Allow time to do its thing. In this example, the “do nothing” option could have generated you a return of more than 560%. Not bad for patience.
So what is the plan?
Consider this: if a buddy came to you for financial advice, would you urge them to trust their instincts and the headlines? Or would you advise them to develop a strong portfolio and ride out the ups and downs?
Most likely, you’d choose the second choice. However, when it comes to our own finances, we frequently disregard our own sound counsel. Why?
You can blame your brain. Our fight-or-flight instincts helped our ancestors avoid sabre-toothed tigers, but they aren’t so good at dealing with market volatility. When terror takes over, logic tends to exit the room.
The winning formula
So, what is the formula for success? For starters, seek assistance. Most of us are not designed to make calm, sensible judgments about our own money, especially during difficult times. This is where a skilled financial advisor comes in.
Next, be cautious of what media you consume. Financial news focuses on eyeballs rather than education. The headlines are intended to elicit emotion rather than deliver objective information.
Finally, play the long game. Real wealth creation is not about quick money or showy trades. It requires perseverance, patience, and a little faith in the process.
At the end of the day, it isn’t about being flawless, but about being there. So keep to it. Your future self will appreciate you.
Maintain prosperity, health, and happiness.
