Ken Fisher, founder of Fisher Investments, wrote a great article in USA Today which illustrates the importance of spending time in the market as opposed to trying to time the market, in order to achieve outstanding results.
Here’s an excerpt from that article:
Riding all of the stock market’s ups – and none of its downs – is a popular fantasy. Who wouldn’t want to skip rough patches such as early 2018, late 2015 or all of 2008?
Alas, it’s impossible. Even the greatest investors are wrong maybe a third of the time.
But here’s some good news: You don’t need perfect timing to achieve marvelous returns. Time in the market beats timing the market – almost always.
Why? Consider three make-believe siblings, each with $10,000 to invest in U.S. stocks each year from 1977 to 2018 – a stretch that includes five bear markets.
Pretend they bought the Standard & Poor’s 500 stock index (broader than the Dow).
Janette, with perfect timing, invests at each year’s monthly market low, earning each year’s full upside. Jebediah, a terrible timer, invests at each year’s monthly market high, missing more gains and capturing more downside. Jackpot, the clever youngest brother, knows he has no timing ability. He invests the first day of each year.
Fast-forward to June 2018. Janette’s 41 years of perfect timing earned an average annual return of 11.4 percent for a cool $8.2 million. No-timing Jackpot was close behind, with an 11.1 percent return and $7.8 million – still great. Even terrible-timing Jebediah got a 10.8 percent return – turning his $410,000 in contributions into $6.7 million. Sure, it’s rewarding enough, but lagging little brother, no-timing Jackpot by $1.1 million is a high price to pay for bad timing.
You can read the original article here.
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