'This Time Is Different': The Fallacy Of Timing The Market

The world has experienced unprecedented events over the last 20 months. From healthcare to housing, supply shortages to higher prices, people have been on edge.

With the pandemic effectively forcing many workers home for an extended period, some became fascinated with online stock trading. Opting for platforms like Robinhood to make quick scores or, unfortunately, to help pay the bills, many have discarded time-tested investment strategies for the meme stock of the day.

Be the tortoise, not the hare

With low interest rates earning fixed assets measly returns and a decade-long bull market continuing its charge, it’s easy to see how these newly minted investors could get wrapped up in “get rich quick” ideology and a belief they’d be missing out on something huge if they didn’t jump on the bandwagon.

Remember that while becoming wealthy can become an obsession, the steady compounding of returns over years usually wins the race.

Holding steady

When it comes to your investment strategy, it’s never been about timing the market – it’s been about time in the market.

While it can be tempting to restructure your portfolio based on what you’re reading about and seeing on the news, keeping your money diversified and utilizing long-term, disciplined management strategies are your best bets at funding your future.

Between 1980 and 2020, the average annual return for the S&P 500 was plus-9%.

When reviewing the market trends over this time period, it was also normal to see dramatic peak-to-trough drops of almost minus-14% in each of those calendar years.

The S&P 500 ended 31 of those 41 years with a positive annual return, a 76% success rate over four decades.

While the media might scare you into thinking the market is collapsing when stocks are down, that has not been the case.

Up-market periods can last years longer than market downswings, meaning if you leave your money in your current investment plan without shifting strategy, you’ll recover much sooner than if you reacted (bailed out) due to media-induced fear.

Fight the FOMO (fear of missing out)

Our team of investment advisors has always educated our clients on our research-based and non-reactionary philosophy for protecting and growing investments.

The best way to avoid the market noise and media hype during downturns is to let sound investment advice guide you.

Sleep well at night knowing history and investor behavior are on your side, and remember that every time your long-term strategy is met with emotional short-term interruptions, you’ll likely be decreasing your retirement nest egg.

It can be difficult to stay the course when others around you are hollering about their near-term successes.

The problem is they don’t speak so loudly about their disappointments.

The next time you find yourself getting lured into the latest headline and think about changing your strategy, remember that by focusing on your long-term goals, and not the market, you will achieve exactly what you planned to when you first began investing.

Geoff Blyth is the senior vice president, chief investment officer and portfolio manager of Tompkins Financial Advisors.