Why time in the market is better than market timing.
Recession and down markets create two types of investors: Turtles and Daredevils.
Turtles cover their head, hide in their shell, and wait for danger to clear. Turtles want to move their portfolio to cash and wait for the dust to settle.
Daredevils are risk takers and thrill seekers. They want to make “moves” that turn into good dinner conversations. Daredevils are market timers.
The bad news: Both are dangerous.
The good news: Knowledge is power.
Market timing is the practice of moving investments in or out of the markets, or switching funds between asset classes, based on predictions.
At its core, market timing is guessing. Market timing is gambling. Market timing is dangerous because it requires you to guess correctly twice – once at the bottom and again at the top – and even the most sophisticated, savvy and educated economists and computer algorithms struggle with that.
Think of it like double dutch. Remember double dutch? We used to see it on the playground (or maybe your parents did.) Double dutch was a jump rope game where kids jumped two ropes rotating in opposite directions simultaneously.
Still confused, go check it out on YouTube. We will be here when you get back.
Market timing is double dutch. We have this idealistic view of it in our minds, like the poetry in that YouTube video. But left to the novice and untrained, it looks more like this.
Go check out the video. We will be here when you get back.
Investing isn’t guessing. I know that this is hard to hear as markets cycle, but it is a better idea to spend time in the market than to time the market.
As advisors we are good at remaining unemotional about your money. That is our job. We are here to help clients balance risk and take the psychology out of investing.
Investing isn’t gambling. If you are thoughtfully creating portfolios for different time horizons and with specific goals then you are investing. If you are saying “hit me” at a green felt table, then you are gambling.
If you invest correctly, you can weather the storm.
If you gamble, you’ll probably get comped a meal at the buffet.
You see, everyone is trying to buy low and sell high. But finding the high and the low is hard.
Psychologically, this recession feels different because we haven’t felt this kind of pain in a while. We have a tendency as human to forget the pain. And, after two years of quarantine and COVID, we have forgotten a lot about what happened prior to 2020.
Most of us probably think about the Great Recession in 2008. We think about the housing crisis and assume that recession means we will all lose our homes and our jobs.
But the truth is the S&P 500 dropped 14% in the fourth quarter of 2018 and markets rebounded, in the first quarter of 2020 the S&P 500 dropped over 30%. In fact, every time the market has declined it has bounced back.
Don’t believe me? Check out this YouTube video.
We will always be here when you get back.