You might have heard people talk about “timing the market”. This is the idea that you can buy stocks low, sell them high, and make a killing.
On the other side, there’s another investing philosophy: time in the market. ⏰ It’s about how long you stay invested, not when you invest.
So, here’s the age-old dilemma - should you try to time the market or focus on time in the market? To spoil it a little bit - one is like trying to catch a unicorn, while the other is more like growing a money tree.
Intrigued? Let’s get into it!
Timing the market - A wild unicorn chase?
Trying to time the market is like trying to catch a unicorn 🦄 - it’s nearly impossible and usually ends in disappointment. It’s the practice of trying to buy low and sell high, based on predictions about the market’s future movements.
Even financial professionals, with all their resources, knowledge, and experience, find it challenging to time the market consistently.
According to a 2020 study by Dalbar, the average investor underperformed the S&P 500 by about 5% over the past 20 years. Why? Because they tried to time the market, leading to buying high and selling low. Ouch! 🤕
Fun fact: Did you know that if you missed the top 10 best days in the stock market over the past 20 years, your overall return would be cut in half?
Time in the market - Growing your money tree 🌳
Now, let’s talk about the more fruitful strategy - time in the market. This is about investing your money for a long period, regardless of market fluctuations.
Imagine you plant a money tree. You water it (invest), you give it sunlight (time), and you let it grow. Some days, the weather might be bad (market downturn), and the tree might look a little less vibrant. But you know that good weather (market upturn) will come, and the tree will continue to grow.
Let’s take the example of our friend Alice again. Alice started investing £200 every month in a simple index fund tracking the FTSE 100 when she was 25. She didn’t try to time the market; she just kept investing consistently. Now, at 65, assuming an average annual return of 7%, she has over £1,000,000! 🤯
All thanks to time in the market. This is for information only and is not investment advice.
So, what’s the verdict?
Well, the verdict is pretty clear. While timing the market might seem exciting, like a thrilling unicorn chase, it’s often a path to disappointment. On the other hand, time in the market, like patiently growing a tree, can lead to fruitful results.
So, are you all about catching unicorns or focusing on patiently growing your money tree, letting the magic of compounding do its thing?
After all, it’s up to you to decide.
Coming up next… automation! How to leverage its power to your advantage! 💪🏼