Time in the market: Why patience Trumps market timing
Time in the market: Why patience Trumps market timing
In investing, two fundamental strategies often come head-to-head: "timing the market" and "time in the market." While the allure of perfectly predicting market peaks and troughs to maximise returns can be tempting, history and financial principles consistently demonstrate the superior long-term benefits of simply staying invested. Trying to time the market is akin to catching falling knives – dangerous, often futile, and ultimately less rewarding than the steady growth achieved by patiently weathering the market's inevitable ups and downs.
The core argument for prioritising time in the market lies in the inherent unpredictability of market movements. Economic indicators, global events, and even investor sentiment can trigger swift and often unexpected shifts. Identifying the precise moment to buy low and sell high requires an almost supernatural level of foresight. Even seasoned professionals with access to vast amounts of data and sophisticated analytical tools struggle to consistently achieve this feat. For the average investor, the odds are overwhelmingly stacked against successfully timing the market with any degree of reliability.
The pitfalls of market timing
Attempting to time the market exposes investors to several significant risks and drawbacks.
Missing the best days:
Market upswings often occur rapidly and unexpectedly. Trying to sit on the sidelines waiting for the "perfect" entry point means you risk missing out on these crucial periods of high growth. A significant portion of the market's overall returns can be attributed to just a handful of the best-performing days. Being out of the market during these times can severely impact your long-term returns. For example, if an investor were to miss just the ten best days in the stock market over the 20-year period to the end of 2024, their overall returns would be significantly lower than someone who remained consistently invested.
Emotional decision-making:
Market timing often involves making decisions based on fear and greed. When the market is soaring, the temptation to buy high can be overwhelming, driven by the fear of missing out (FOMO). Conversely, during downturns, panic selling can lead to locking in losses. These emotional responses often result in poor investment choices that undermine long-term financial goals.
The difficulty of being right twice:
To successfully time the market, an investor needs to make two correct decisions: when to sell and when to buy back in. The probability of accurately predicting both of these turning points consistently is extremely low. Missing either one can lead to either selling too early and missing out on further gains or buying back in too late at a higher price.
Opportunity cost:
While waiting for the "right" moment to invest, your capital remains idle and misses out on the potential returns it could have earned you simply by being invested in the market. Over the long-term, even modest returns compounded consistently can significantly outpace the returns achieved by sporadically entering and exiting the market.
The advantages of time in the market
In contrast, adopting a "time in the market" approach offers a more dependable and less stressful path to wealth accumulation.
Compounding:
Consistent investment over the long-term allows you to fully benefit from the power of compounding. Compounding is the snowball effect where your earnings generate further earnings, leading to exponential growth over time. The longer your money remains invested, the more significant the impact of compounding becomes.
Riding out market volatility:
The stock market is inherently volatile, experiencing periods of both growth and decline. By staying invested through these fluctuations, you avoid the risk of selling low during downturns and missing out on the subsequent recovery. Historically, market downturns have always been followed by periods of growth.
Reduced emotional stress:
By focusing on the long-term and avoiding the temptation to react to short-term market noise, investors can experience less emotional stress and make more rational investment decisions.
Missing a handful of the best days in the market could have a significant impact on portfolio performance
Source: Artorius, Bloomberg
While the idea of perfectly timing the market to maximise profits is enticing, it is a strategy fraught with risk and rarely successful in the long run. The evidence overwhelmingly supports the power of "time in the market." By adopting a long-term perspective, investing consistently, and allowing the power of compounding to work its magic, investors are far more likely to achieve their financial goals than those who try to outsmart the market's unpredictable nature. Patience, discipline, and a long-term focus are the cornerstones of successful investing, proving that in the market, time is indeed your greatest ally.
While the market's reaction following the Trump administration's tariffs may feel unsettling, and looking at portfolio values might not be as pleasant as it was at the turn of the year, history tells us that staying invested and not panicking is the best long-term decision. It further proves that having a strong, diversified portfolio (as discussed in our Investment Comment of 31st January 2025) combined with maintaining a long-term view on investing is the most prudent approach to take.
Josh Young de Ferrer
Portfolio Manager
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Important Information
All expressions of opinion reflect the judgment of Artorius at 11th April 2025 and are subject to change, without notice. Information has been obtained from sources considered reliable, but we do not guarantee that the foregoing report is accurate or complete; we do not accept any liability for any errors or omissions, nor for any actions taken based on its content. The value of an investment and the income from it could go down as well as up. The return at the end of the investment period is not guaranteed and you may get back less than you originally invested. Past performance is not a reliable indicator of future results. Nothing in this document is intended to be, or should be construed as, regulated advice. Artorius provides this document in good faith and for information purposes only. Reliance should not be placed on the information contained within this document when taking individual investments or strategic decisions.
Artorius Wealth Management Limited is authorised and regulated by the Financial Conduct Authority. Artorius is a trading name of Artorius Wealth Management Limited.
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