When I first started working as an Advisor in Wealth Management, someone gave me a list of the number one reasons why not to invest each year from 1934 (The Depression) to 1999 (Y2K). Throughout my career, this list has probably been the single most important piece of paper anyone has ever given me. It puts things into perspective. It’s what helps me keep my head when emotions run high when markets fall. In fact, it is what prevents me from making the number one investor behaviour mistake anyone can make – selling in a panic. Did you know that in 1961 the number one reason not to invest was because the Berlin Wall went up? And guess what the number one reason not to invest in 1991 was. The Berlin Wall came down! On that list are wars, assassinations, oil crisis, interest rate spikes, recessions, market crashes… and even pandemic scares. The stock and investment markets are a fickle thing. And yet, through all the ups and all the downs, if someone had invested $10,000 in January of 1934 in the S&P 500 and forgot about it, it would have been worth over $22,738,948 at the time my list ended. If 1999 is ancient history for you, as of the time of writing, that investment would be worth over $47 Million. Over the past 20 years since my list ended, even though the investment started at the market highs of the tech bubble, after crashing in the tech wreck, and going through 9/11, wars and even The Financial Crisis, that investment has still more than doubled. And that doesn’t even include the dividends – the income those investments would have paid each and every year.
If there is one single thing that list tells me and what it has allowed me to internalize, is that it’s not market timing that makes money. No doubt the reason not to invest in 2020 will be Corona Virus, and there will be a different reason not to invest in 2021, and another reason in 2022. Quite simply if you were always trying to find the market bottom to take the plunge, there would always be another reason to wait. If you were trying to time the market, in the end, you wouldn’t have ever invested. No, it isn’t timing the market that works (and there is plenty of research to back me up on this point). Rather, to be successful with investing it’s the time in the market that makes you money.
Fidelity did the math. They looked back over the S&P 500 from 1980 to 2018 and there have been a lot of ups and downs over that period. In fact, there have been numerous periods with stock market declines over 30% during those years. And yet, if as an investor, you hadn’t panicked, you didn’t sell and go to cash, but rather stuck with your long term investment plan over those, years that $10,000 would have grown to $708,143. Not bad. Now, what if you stepped out of the market and missed just the best 5 days over those 38 years? That $10,000 would have just grown to $458,476. Missing just 5 days reduced your overall return by 35%! And guess when the best market days are most often to occur - it’s in the heat of chaos. In the most volatile of volatile times like in the tech wreck, in the financial crisis, and guess what, we just had the biggest ever single point gain in the S&P index – in the midst of the Corona Virus scare on March 2, 2020.
As it relates to investing, for anyone who is looking to achieve a lifetime of financial independence, time in the market, not timing the market is a very important lesson to learn and live by. Avoiding the number one investor behaviour mistakes (selling at a bad time / going to cash in a panic) means having an investment plan that is one you can be comfortable sticking with – even in the darkest of market days. Given the volatility that seems to reign today, it may be time to review that investment plan with your advisor, make sure it’s one that is aligned specifically with helping you reach your personal goals, and that is an appropriate level of risk so you can give it time and stick with it.