A must read: Time vs Timing

Apr 03, 2019 | Jeremy Goldfarb


The question as to whether one should try to time the market for tops and bottoms when putting new money to work is something that advisors and investors wrestle with constantly. Whether you are a do it yourself investor, or you have guidance, this has never been a simple answer.


the best time to invest in the market is when you have the money -- Sir John Templeton


I read a fabulous piece by RBC`s Tim Corney this week, and it provided some material data that argues for the very quote cited above. In fact, Mr. Corney quoted this directly in his piece. But lets`s have a look at the data that was presented.


What the chart above highlights is 3 specific investment scenarios that go all the way back to an entry point in 1966. Each investor starts initially with $10,000 and contributes an additional $1,200 annually:


1- perfectly timed entry points in each given year (hitting the lows)

2- less effectively timed entry points in each given year (hitting the highs)

3- Annual investment made at the beginning of each year


It can be seen that the delta between the 3 investors from an overall return standpoint was relatively small when looked at over the total investment period. In fact, over a 52 year period, the difference between the best and worst was only 17.6 (sounds like a lot but wait) which amounts to a paltry 30bps difference annually. One could argue that if the highly skilled investor was using an expensive advisor (who had a miraculous track record of doing everything on time), then the fees would wipe out the difference. If we look at the difference between the perfect timer, and the systematic (invest at the beginning of each year) approach, the results are even smaller. A miniscule 16bps difference annually. Hardly worth getting out of bed for.


The condensed conclusion in the article was the fact that the power of compounding far outweighs the effects of market timing, and thus you end up with largely indifferent outcomes on the whole.



Ok, so then why stress at all. Technicals, highs, lows.....who cares. In reality, we do not generally have the temperament to invest blindly....to put the money in and turn out the lights for 52 years....there are optics, and there most definitely is emotion. I would argue however that investors spend far too much time stressing over the when. It matters, just not that much.




Wealth Investing