“Buy low, sell high” doesn’t work. Yes, we all want to buy at the lowest price and sell at the highest to maximize our return. However, this kind of thinking faults the investor into market timing and trying to outsmart everyone else. It doesn’t work and that’s why most retail investors fail to beat the benchmarks. As an investor fueling your financial plan and balance sheet, your mantra should be to buy and hold and to invest as early and as often as you can.
Holding onto your investments can take a lot of patience and conviction. How do you know you didn’t buy at the top? It doesn’t matter.
Let’s say you’re a smart investor and wanted to invest passively in an S&P 500 index fund. However, assume you are also the unluckiest investor and bought into the S&P 500 right before the market crashed – you would still have more money today than when you invested.
The Growth of $10,000 Through 2019
|If you invested in the S&P 500 right before….||Today, you would have….|
|Great Depression (Oct. 1929)||$33 million|
|Black Monday (Oct. 1987)||$205,000|
|September 11th (Sep. 2001)||$41,000|
|The Collapse of Lehman Brothers (Sep. 2008)||$32,000|
It’s impossible to know what’s going to happen to the stock market tomorrow to ensure you’ve bought in at the best price possible. Uncertainty is inherent with investing and you do risk buying right before a market crash, but waiting it out is just as risky. When it comes to investing in a diversified investment portfolio for the long term, go ahead and take the plunge. Market timing risk is most often mitigated by time in the market itself because investments are elastic and over the long term, you will achieve the expected results.
Just remember, I’m not your financial advisor so the information may or may not best apply to your situation and you should get formal advice prior to doing anything. The information/data that is shared should be double checked by you and any conclusion that is driven based on past data is not to be interpreted as my advice for your future. I will do my best to only write what I think is true and right, but mistakes happen and we’re all learning together – this is meant to be a conversation. My employer has nothing to do with this blog – in fact, they’re probably upset I’m writing here instead of working.