So you think you can TIME THE MARKET ? Part I

Here are a couple of facts about this stock market that we love so much. I’ll use the S&P 500, but any diversified index will work.

So, for US LARGE companies the following has been true since 1926, which is to say for as long as we have reliable data:

~ Out of the past 88 years, 66 of them have been positive ones. That’s exactly 75%.

~ For these positive-return years the average return was 21%.

When confronted with data like this, most of us go directly to this thought:

What if I could avoid the negative years? Then my return would be the average of 3 years at a 21% return and 1 year at 0%.

We think: “Even if I missed getting out in time before half of the down years, I would still be better off than if I didn’t try, right?”

This logic is flawed, and I hear these kinds of rationales all the time from investors who think they can time the market.

What we fail to take into account is that once you are out of the market, you are also required to get back in at the right time so as not to miss the next positive year. Some of these positive years are VERY positive, and rarely do they start on Jan 1.

But never do they come with a memo ahead of time.

Another consistent reality is that the positive years that follow the negative ones are usually quite sharp in their turn to the positive. Those who get out of the market trying to miss the dip will also miss a big chunk of the rebound.

So, unless you know the future, just remain invested, re-balance on the dips, and wait for the rebound.

Join us on April 22nd to learn more about peace of mind in the Bear Markets.

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