In our recent blog “Block Out the Market Noise” written by Director and Wealth Adviser, Glenn Fairbairn, his closing thoughts were this:

As humans, we can be very reactive and sell at the worst possible time, this leads to two core principles of investing:

• It is time in the market, not timing the market; and
• Be fearful when others are greedy and greedy when others are fearful.

On July 15, 2024, the S&P/ASX 200 crossed the 8000-point mark for the first time, propelled by speculation that the Federal Reserve in the United States would begin its rate-cutting cycle. This occurred the morning after the S&P 500 (the index of the 500 largest companies listed on stock exchanges in the United States) once again, reached a new record high.

Despite concerns about inflation, interest rates, and geopolitical tensions, markets have continued to reach record highs. In light of this, I wanted to explore the first core principle above, ‘time in the market, not timing the market’.

This concept suggests that it is not about investing when the ‘price is right’, but instead, investing for the long-term. It means that you should invest regardless because ultimately the longer you’re in the market, the better the outcome.

Historical evidence also supports the approach of long-term investing. Data from the US (Australia generally follows the same pattern) shows that between 1926 and 2019, the US market had positive returns per year 73% of the time. On a monthly basis, the market was up 65% of the time and on a daily basis, the market was up 54% of the time.

Rather than trying to time the market and buy at the bottom (which is impossible to predict), a long-term approach involves buying shares and holding them over the long-term, irrespective of market movements. Waiting on the side lines to invest is also dangerous because missing out on some of the best performing days in the market can have terrible long-term consequences on your financial outcomes. To quote Warren Buffet, “The risks of being out of the game are huge compared to the risks of being in it.”

If you miss the S&P 500’s 10 best days over the last 30 years, it will cut your return in half. If you miss the best 30 days, your return would be 83% lower.

Performance data from Australia to 31 January 2024 in the S&P/ASX200 tells a similar story. Over 5 years, the index had returned 9.71% per year and if you miss the top 20 days, the return reduces to 3.21%. Over 10 years, performance has been 8.39% and 5.14% without the top 20 days.

Trying to time the market is next to impossible. Instead, implement an appropriate asset allocation strategy and remain fully invested throughout the various market cycles. Additionally, periodic rebalancing should take care of “buying low and selling high” over the long term. To discuss personalised financial planning and investment strategies, please feel free to contact us HERE.