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Why Timing is Not Everything

The old phrase "timing is everything" seems to capture the way random, chance events affect us throughout life. Of course, these sometimes life-changing events can be either negative or positive. There are numerous examples:

  • You have to stop for gas on your drive to work and find out you miss a ten-car accident by two minutes. 
  • You run into an old friend, get invited to a cookout the next weekend and end up meeting a future business partner.
  • Your son is studying in Italy and runs into a girl from grade school who ends up being your daughter-in-law.

We could all rattle off an odd set of circumstances which ended up profoundly impacting us and can be perceived in any number of different ways. One person might think their situation was a result of divine providence; another, mathematical chance; still another, a mystic power in the universe; or another, just dumb luck. Regardless of how events are perceived, it's almost universally accepted that "timing is everything".

While the way we see random events in life may lead us to believe that "timing is everything," we believe that applying this mindset to investing is at best unprofitable and at worst, downright hazardous to your financial health. Why? Because the financial markets are so unpredictable; it's almost impossible to accurately time the market in a consistently profitable way. One has to make two accurate calls for "market timing" to work; when to get out, and when to get back into the markets. History shows this is very difficult, if not impossible, to do consistently profitable.

With the stock market touching new record highs the last few weeks, we seem to be getting more and more questions about whether or not it makes sense to continue investing "at these levels". Our immediate question is: "When will you need to use this money?" We certainly can't provide appropriate advice without knowing the answer to that question as we always consider each family's individual circumstances.

But taking it a step further, history suggests missing just a few days of market moves can have dramatic effects on a family's portfolio. In fact, a recent study by JP Morgan Bank shows just how volatile markets can be points out that missing iust 10 of the best trading DAYS out of 20 YEARS of investing would have nearly cut your return in half! Even more importantly, the study points out that "six of the 10 best days occurred within two weeks of the 10 worst days", which means when things looked their darkest, those that remained invested usually recovered and made healthy profits. Keep in mind, the typical year has about 252 trading days so 20 years of trading days is over 5,000 days!

Successful investors determine an allocation between stocks, bonds, and cash with which they are comfortable and determine to live with it through the various market moves. With that mindset, they never miss the 10 best trading days out of twenty years and reap the benefits that the equity markets have historically always provided. Thus, as those much smarter than I have observed, "It is time in the market that ultimately matters, not market timing!"

Authored by fellow Alliance of Comprehensive Planner (ACP) member, Anthony Kure, CFP®, MBA. Alliance of Comprehensive Planners