“Don’t time the market!”
“Timing the market is a losing proposition!”
“It’s impossible to time the market!”
You’ve heard it by now. It’s why you’re diversified. It’s why you’re portfolio is “safe”. Frankly, it’s why your investments strategy is boring.
Let me start with a graph.
Any guesses what it represents?
You’ll note sustained growth over time. Peaks and valleys. About two-thirds of the way through, you’ll notice a pretty steep drop, followed by a rebound, then a very significant drop. After the steep decline, it was clear sailing. Could it be the dot-com bubble followed by the housing crisis?
Let’s zoom out to reveal the x-axis and y-axis.
Ahh, much better. As you can see, it’s actually the early days of the S&P. That steep drop? It was the 1973-74 stock market crash.
For reference, this is the S&P from roughly 1986 to 2017.
While the time frame and oscillations in the market weren’t the exact same, it’s reasonable to say they are eerily similar-particularly because the general population didn’t see either one coming.
Why #1: The oscillations happen. The ’73-’74 stock market crash wasn’t the first one, and the subprime mortgage crisis wasn’t the last. However, the crashes are only relevant because the market’s sustained success before and after. The volatility is part of the ride.
To knock out the second part of why, let’s take a look at another graph.
Remember that 1973-74 stock market crash? It’s all but nonexistent here. In fact, you have to zoom in and take a closer look of the image to even identify the subtle movement. It’s merely a blip on the radar relative to the growth since then.
Why #2: What seems like a catastrophic drop or monumental leap now, is relatively nothing over the long-term. Over time, the highs and lows mirror each other, but the overall growth is undeniable.
Point is, it doesn’t matter if you get in high or low-the important part is that you’re invested.