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Why I’m Not Afraid to Invest in a Crazy Stock Market

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:

  1. Timing the mar­ket (consistently) is im­pos­si­ble and over the long run in­vest­ing RIGHT NOW re­gard­less of the mar­ket cy­cle is bet­ter for al­most every­one
  2. 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
  3. 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:

  1. 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
  2. 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
  3. 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.

NoteSourceSchwab 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.

Next steps

Are you frus­trated with the level of tax you’re pay­ing? Do you feel like tax ad­vi­sors and fi­nan­cial ad­vi­sors aren’t speak­ing the same lan­guage? Are you of­ten left won­der­ing if you are leav­ing money on the table due to a lack of in­te­grated plan­ning?

Fabio and his team have been help­ing clients plan their tax, re­tire­ment, and es­tate mat­ters since 2002.

If you’re in­ter­ested in tak­ing con­trol of your fi­nan­cial mat­ters, then don’t hes­i­tate to con­tact us di­rectly for an ini­tial con­ver­sa­tion.

No cost, no oblig­a­tions.


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