Time Vs Timing…
There’s a saying among investors that time in the market is more important than timing the market. As no one can accurately and consistently predict the up and down swings of the market, trying to jump in and out may be a much less successful strategy than simply jumping in and buckling up for the long term. Though peaks and troughs can’t be estimated with persistent accuracy, time may help investors weather turbulence and downturns.
So far this year, the stock market has fallen to levels not seen since December 2020. Since their most recent high reached in January, stocks have dropped as much as 24.5%, and are currently sitting at 20.5% below their last peak. Anyone who only started investing within the past few years may be feeling discouraged. However, market downturns are a regular occurrence, and depressed stock prices can be desirable buying opportunities for long-term investors.
In less than 10 years, stocks have lost more than 10% of their value multiple times. After losing more than 35% in a pandemic-induced selloff in March of 2020, stocks recovered and then lost nearly 11% later that same year. Markets shed more than 20% during the trade war and took 13 months to recover. It took 16 months for stocks to recover after losing as much as 15% in 2015. Despite the dismal returns of 2022, investors who have been in the market for the last 5 years would still have gains of 56%. Investments made 10 years ago would have increased by 172%. An investment made 20 years ago would have grown by 318%, and entering the market 30 years ago would have yielded an 825% return.
For the average retirement investor, market risk is not about making money right away. If money might be needed to pay bills or cover upcoming expenses, it probably doesn’t belong in the market. That’s why building cash savings outside of stocks and making use of a budget is crucial to avoid over-investing. If you find you have put too much into stocks and need to cover an unexpected expense, markets may not cooperate; and you may have to sell for a loss. That's why it is important to only invest funds that can be securely tucked away for the future. Aesop Advisor LLC typically considers 10 or more years to be long term.
July 6, 2022
Returns provided are for the S&P 500 stock index and do not include dividend payments.
Markets Demystified is published the first and third Wednesdays of each month,
and explores how stock market investing can relate to personal finance.
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