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Time In vs. Timing The Market

Time In vs. Timing The Market

August 16, 2023

Timing the market versus time IN the market is a common phrase heard comparing investment time horizon and advantageous trading opportunities, pronouncing the importance of getting invested in the market and STAYING invested in the market. 

While the mantra does well to emphasize the importance of starting now with your investment portfolio, it’s critical to underline the value in also timing the market - though maybe not in a sense that you’re considering. 

The thought of “timing” the market likely leads one to think about trading in the sense of short-term stock picking, riding the hourly / daily ups and downs in the market. We consider the timing of a market much differently that, and although we expect the overall trajectory of the broad market to be positive over the long term (average annual return over the last 30 years of the S&P 500 are more than 7% after adjusting for inflation), we also expect to see internal market changes quarter-to-quarter and year-to-year. 

This means that the two seemingly competing mantras are not mutually exclusive, but rather are both applicable when interpreted correctly. 

We want to highlight how these two strategies can be applied, much like we apply in our professional investment advisory practice for our clients:

  1. Get invested now. There are certainly some important considerations to be made when selecting what you’re investing in, though getting your cash invested in general must happen to maximize your time in the market. The longer term, the better off you’ll fare. As mentioned above, the average annual return for the last 30 years is more than 7%, and if you pick any continuous 30 year period over the last century, you’ll find similar positive returns. That should loudly speak to you in a way that makes the clear choice a standalone choice: start investing now!
  2. Seek out the stronger areas of the market. We call this relative strength, in our practice. Relative strength is a factor when comparing one security versus another. This could mean comparing diversified securities (funds that index an entire market, cap-weighted vs. equal-weighted), semi-diversified securities (funds that index an industry sector, technology vs. utilities), or non-diversified securities (individual stocks against their direct competitors in the same industry, Nvidia vs AMD). While the overall trajectory of the market rises over a long period, subtle variances in performance exist under the surface, much like water flows in the ocean (surface vs. subsurface temps). The Nasdaq Composite Index (COMP) is up 30.14% year-to-date so far this year, though digging deeper into a semiconductor fund, iShare’s SOXX ETF is up 41.82% year-to-date. Deep and thorough research is the mechanism to discover those stronger areas of the market, which is one of our strong suits. Here’s the most important part of focusing in on the stronger parts of the market: they change over time, and some are cyclical. So rather than buy-and-hold for a long period, one might rotate from one sector to another after 6/12/18 months, as market conditions change.

To be clear, it’s important to prioritize the first step before anything else. Getting invested to grow your wealth is an important first step. Beyond that, it’s surely possible to use factors like relative strength to seek advantageous returns, though investment planning and a rules-based approach should be applied. Regularly reassessment of current holdings, routine research of overall market and sector / sub-sector conditions, and clear buying and selling rules. 

While we do offer advice-only services, where one can implement their strategy on their own while relying on us for periodic reviews and check-ins, we find that many consider the benefits of having us manage their portfolio on their behalf to outweigh the reasons for doing it themselves. 

If you’re not sure where to start, let us be your first move. A free consultation to review where you’re at and what you’re wanting to do might just save you time and effort to get your investment journey started or on track with your goals. Set up a call with us today!