Staying Invested

Why Time in the Market Beats Timing the Market

You might think investors unequivocally love periods of sustained market strength. But, that’s obviously not the case. Money managers fret about market corrections, while retail investors worry about buying high and being forced to sell low. And right now, a LOT of people are asking (correctly in our opinion) whether the AI bubble is in fact a bubble… and when might it potentially pop?

What do we say to our clients asking if now is the best time to invest, if one thinks the market is overconcentrated, overheated and headed for a correction?

At City Different Investments, we prefer to invert the question… the question isn’t “Is now the right time to invest?” but rather “What’s your time horizon?”

The Power of Time Horizons

History doesn’t guarantee the future, but it does give us strong signals. Over the long haul, being invested has overwhelmingly favored patient capital.

• On a day-to-day basis, the odds of the U.S. equity market (e.g. S&P 500) delivering a positive return are only slightly better than a coin flip — roughly 53% positive days.
  
  
• Over 5-year rolling periods, roughly 87.5% of periods are positive (i.e. returns > 0).
  
  
• Over 10-year rolling periods, the frequency of positive outcomes rises to ~94 %.
  
  
• Stretch that to 15–20 years, and virtually all rolling periods show gains.

These patterns reflect a broad truth: the longer your holding period, the higher the odds of success. That doesn’t mean returns will be smooth — volatility is part of the deal — but the risk of loss diminishes with time.

Drawn out across the last 150 years, the data becomes even more compelling:

Over 1-year analysis periods, the S&P loses value 31% of the time… still a pretty great win rate, but far from failsafe. But, as you lengthen the window of analysis, fewer and fewer red bars appear in the chart. Once you get to a rolling 20-year average? Zero red bars.

In other words, the U.S. stock market has never declined over any 20-year period in history.

The return of the U.S. stock market has been 7.1% per year on an annualized average basis, over the past ~150 years. So yes, over a long enough time horizon, the U.S. stock market has always delivered gains for patient investors.

The Myth of the Perfect Entry Point

Even if you could magically time every market top and bottom, the long-term difference isn’t as dramatic as you might think.

Schwab ran a 20-year study comparing five hypothetical investors who each added $2,000 to the market annually via an S&P 500 tracking fund. The “perfect timer” — the one who somehow always bought at the lowest point each year — finished with about $186,000. The investor who simply invested immediately each year ended with ~$171,000. That’s a gap of only about $15,000 after two decades (or less than one percentage point per year). Your upshot in this scenario is <1% per year if you manage to do something basically impossible.

Meanwhile, the “bad timer” who consistently bought at the worst possible moments still ended up with ~$135,000 (more than triple his total contributions). 

But the person who left money in cash equivalents because he was too worried about mistiming the market? He ended with ~$47,000.

The takeaway? The cost of waiting for the perfect entry often outweighs the benefit of catching it. As legendary investor Peter Lynch once put it:

“Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves.”

That remains as true today as it was when he said it. Waiting for that “perfect dip” often costs you more than getting in a little early (or late)... especially if/when markets grind higher.

Investing Through Uncertainty

Every cycle feels unique. Today’s valuations might make folks uneasy; tomorrow’s might look conservative in hindsight. But discipline and patience, backed by historical evidence, tend to pay off.

At CDI, here’s how we frame it for clients:

• Markets reward time, diversification, and staying invested… not chasing timing precision. Time, not timing, drives compounding, and staying invested through cycles allows compounding to work its magic
  
  
• Volatility is the toll you pay for exposure to growth; short-term swings are inevitable, but long-term growth is the reward
  
  
• A consistent plan beats trying to outguess the next move

IMPORTANT DISCLOSURES

This post is for informational purposes only and should not be viewed as a recommendation to buy or sell any security or personalized investment advice. The information and statistics contained herein have been obtained from sources we believe to be reliable but cannot be guaranteed.  Any projections, market outlooks, or estimates are forward-looking statements and are based upon certain assumptions. Other events that were not taken into account may occur and may significantly affect the returns or performance of these investments.  Any projections, outlooks, or assumptions are subject to change without notice, and should not be construed to be indicative of the actual events which will occur. Past performance is not indicative of future results. There can be no guarantee that any strategy will be successful. All investing involves risk, including the potential loss of principal. Investments highlighted were selected based on objective, non-performance-based selection criteria. Names are subject to change.

Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, product or any non-investment related content, made reference to directly or indirectly herein will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. You should not assume that any discussion or information contained herein serves as the receipt of, or as a substitute for, personalized investment advice from City Different Investments. To the extent that a reader has any questions regarding the applicability above to his/her individual situation or any specific issue discussed, he/she is encouraged to consult with the professional advisor of his/her choosing.

Opinions and statements of financial market trends that are based on market conditions constitute our judgment and are subject to change without notice. Historic market trends are not reliable indicators of actual future market behavior. This material may contain projections or other forward-looking statements regarding future events, targets or expectations, and is only current as of the date indicated. There is no assurance that such events or targets will be achieved and may be significantly different than that shown here. The information presented, including statements concerning financial market trends, is based on current market conditions, which will fluctuate and may be superseded by subsequent market events or for other reasons. Although the assumptions underlying the forward-looking statements that may be contained herein are believed to be reasonable, they can be affected by inaccurate assumptions or by known or unknown risks and uncertainties. The Firm assumes no duty to provide updates to any analysis contained herein.

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