Timing Never Works

Repeat after me: I shall not try to time the market. Ok, again: I shall not try to time the market.

Why? Because it doesn’t work. At least not in the long term. Sure you can get lucky every now and then but over time you’ll almost certainly underperform the broader stock indices.

Warren Buffett, arguably the greatest investor of our time, was so confident in the advantages of stock index funds that he bet a hedge fund manager $1.0M that over a 10-year period the S&P 500 index would beat the actively managed hedge fund. Venture to guess who won? Buffett and the S&P Index fund.

More striking perhaps is the fact that the bet started in 2007 and shortly after, the Great Recession began. Buffett’s index fund lost 37% of its value.

Fast forward 10 years though and Buffett had handily beat the actively managed fund, after expenses and fees were deducted from both funds.

Almost none of the professional money managers beat the average returns of the S&P 500, a broad stock index of over 500 very diverse large companies. Keep in mind these are professionals who spend every minute of every day trying to get the best returns for their investors. If they can’t do it with their connections, face to face meetings with executives from the companies they invest in, and all the state-of-the-art equipment, what makes the average investor think he or she can?

My simple advice to you is this: Focus on the amount you can save each month and strive to increase that amount over time. Don’t try to outthink the market, or worse, time it. Invest in index funds, whether small cap, international, or large cap, that take much less of your returns in the form of fees. You’ll be much better off in the long term.

Rick

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