We all know that trying to time the market doesn’t work — yet many times that’s exactly what clients try to do. We hear story after story from our advisors of clients who are scared of something — an election, a market slide, a prediction — and they say, sell everything.
But the next part of the story is also very common. Now the client has to decide when to re-enter the market. The market starts going back up, but they still wait for better timing. The dip they anticipated doesn’t come and the green line keeps going up. Well, then it gets so high that the client says, I can’t get back in now. You don’t buy at the top. Everybody knows that. So they’re paralyzed and never get back in. These are the same people that got out at the bottom of 2008 and missed the huge run-up afterwards.
It’s not timing when you invest. It’s identifying where you invest.
A Bet That Pays Off
One of our advisors says there’s two kinds of people: those who can’t time the market and those who don’t know they can’t time the market. In 2008, Warren Buffett made a $1 million bet with a hedge fund manager. Warren put his money in the Vanguard S&P 500 index fund, just mirroring the market. Then he told the hedge fund manager to go ahead with all the trends, the math and all the algorithms — in 10 years, they’d compare portfolios. Whoever does better wins a million dollars (and will give that money to charity).
Ten years later, the hedge fund manager had gains of 87 percent. Buffett, even with the Great Recession of 2008, came in with a gain of 125 percent, proving that it’s time in the market, not timing the market.
The Numbers Don’t Lie
One study from JPMorgan looked at $10,000 invested in the S&P 500 from January 2003 to December 2022. If you stayed invested every day for 20 years, you’d have over $64,000. If you missed the 10 best days over those 20 years, your return was only about $29,000 — less than half the amount the other investors took home.
Another study from Charles Schwab looked at the S&P 500 over the same 20 years. Each theoretical investor was given $2,000. One had perfect market timing, investing at the lowest trading point. Another had terrible market timing, investing at the highest trading point. Another invested on the first day of every year. Another invested on the first day of every month. And another was scared to death of the market and put all their money in treasuries.
In the end, the investor that used dollar cost averaging, putting money in on the first day of every month, was only $10,000 behind the one with perfect market timing — and without all the indigestion.
Selling with Stories is designed to give you ideas on how to present these tough topics in a more understandable way. It’s part of our effort to arm you with the skills you need to grow your business. You can also check out House Rules for ideas on marketing and Ready, Set, Grow for other aspects of your business. As always, remember to like and subscribe to get the best of each show every week.
