Stocks are down, bonds are down, real-estate is down.
The major governments of the world are playing with interest rates to curb skyrocketing inﬂation.
You’ve got money on the sidelines, but you’re afraid to dip into the stock market for fear of another major drop.
I don’t blame you, it’s scary.
But I’m not worried.
One of my key investment philosophies is “Time IN the market vs. TIMING the market”. Basically, attempting to time the market, say, trying to ﬁnd the bottom of a bear market or top of a bull market has been proven time and again to be impossible. Further, over the long run, even if you are perfect, it doesn’t really work.
Charles Schwab, a large US based banking and investment conglomerate, ran a study on this in 2021 and their conclusions were:
- Timing the market (consistently) is impossible and over the long run investing RIGHT NOW regardless of the market cycle is better for almost everyone
- Procrastination is worse than bad timing. Even investors who invested when the market was at artiﬁcial peaks did better than investors who tried to time the market over the long run
- Dollar-cost averaging works well, especially if you’re prone to panic if you experience a short-term drop
When they ran the numbers over a 20-year period these were the results (1):
As you can see from the graph above, perfect timing (which is impossible) doesn’t really beat out investing immediately, dollar cost averaging, or bad timing by much over the long run.
The only consistent result they got is that staying fully in cash is significantly worse.
They even ran the numbers of the 76 rolling 20-year periods dating back to 1926, and in 66 of 76 periods the results were the same, with some variation in only 10 of the 76 periods.
Overall, my favorite technique is dollar-cost averaging for several reasons:
- It eliminates what I call “sideline syndrome” which is the fear of loss and simply sitting on the sidelines with your idle cash leading to missed opportunities
- It minimizes the feelings of regret if there is a major downturn in the market because you are dripping the money in rather than dumping it all in at once
- It forces you to avoid market timing which is a psychologically tempting concept to follow but leads to sub-par performance
Are you ready to take a step forward and secure a lucrative ﬁnancial future for yourself and your family? We are always ready to speak to ambitions entrepreneurs and high-income earning families looking for an edge.
Feel free to contact us for a zero-cost, 30-minute, online meeting where we can get to know you and determine if we can help you pave a path to ﬁnancial success.
Note: Source: Schwab Center for Financial Research. Invested $2,000 annually in a hypothetical portfolio that tracks the S&P 500® Index from 2001-2020. Past performance is no guarantee of future results, small changes in assumptions can lead to large changes in results. Investing is risky, you should always consult with a professional before investing. This blog post is not intended to solicit investment or provide investment advice.