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Don't Try to Time the Market - Focus on Time in the Market Instead

April 1, 2021
By: Bill Van Sant, SVP and Managing Director, CFP®
 
Photo of middle-aged couple reviewing their finances together.
Some people see investing as a trip to the casino: they try to put money in and take it out at just the right times to reap huge returns at the ideal moment. However, investing isn’t a game of shorts — it’s about the long haul.


What investors should really focus on is the time spent in the market, not timing the market. If you look at the S&P 500 for the 20-year period of 1999 through 2018, you’ll notice that there is an average annual return of 5.6%. However, if you missed the 10 best days during this period, your average return drops to 2.6%. And if you miss the 30 best days? Your rate has now plummeted to -2.4%. Additionally, the data shows that six of the best-performing days in this 20-year period occurred within two weeks of the 10 worst days. So, what does this mean for investors?

It means that trying to time the market by buying in or pulling out depending on predicted market performance can cause investors to lose out on the reward of investing for the “long haul.” Many investors worry when markets plunge — like they did in March of 2020 at the start of the pandemic — and have the knee-jerk reaction to remove themselves from the market. However, sometimes the best course to take during a storm is to stay the course you’re already on.

Another reason to spend as much time in the market as possible is that the average life expectancy for Americans has risen by roughly 2.5 years according to a recent report from the Social Security Administration. This means that individuals need more and more money to fund their retirement years. While cash may be king and, in some cases, is the safest option for funds, it won’t give investors a positive real rate of return, that is a positive return, net of inflation and taxes.  To earn a positive real rate of return, investors may need to take the risk involved in equities. Instead of trying to time when to pull out of the market, investors should consider “buying the slump” and take advantage when markets are down to invest more. While this strategy cannot guarantee an investor will make money or protect against further market declines, this approach can potentially give them more bang for their buck as they hold on to investments for years to come.

The last thing to remember, regardless of age, is that a well-diversified portfolio can usually help reduce, but not eliminate, market volatility that will be experienced from time to time. If possible, long-term investors should try to embrace market pullbacks because these events may open up potential opportunities. To take advantage of these opportunities, long-term investors will want to work carefully with their advisor to ensure they have a diversified portfolio that can help protect against any particular sector’s misfortune.

It can be tempting to take a gamble and try to time when to invest and when to pull out when watching the ups and downs of the stock market. Remember, investing isn’t about how much you can make or lose in a single day — it’s about having the patience to watch your money grow over the long term. Get in touch with the advisors at Girard to have a conversation about how to create a plan that can help you pursue your financial future with confidence.


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This article is for general information purposes only and is not intended to provide legal, tax, accounting or financial advice. The information in this article, and any opinions expressed therein, do not constitute a recommendation or an offer to buy or sell any security or financial instrument. Viewers should consult with their financial and/or legal professionals before making any financial decisions.

Any index or indexes referenced are not managed and cannot be invested in directly. Past performance is no indication or guarantee of future results.