It's Not Timing the Market - It's Time IN the Market
It's Not Market Timing, It's Time IN the Market
I recently attended a fantastic retirement seminar by Fidelity and wanted to share some of the highlights here. The title of this post reveals one of the great adages quipped by the Fidelity speaker namely, It’s not market timing, it’s time in the market. He showed a pie-chart graph indicating where most peoples growth in the stock market comes from and I recall only 1.8% could be attributed to market timing. A great article I read from http://www.sharebuilder.com/ gives some quantitative numbers that really drives home the concept of staying in the stock market and not jumping in and out. The article is called The Virtues of the Long-Term Outlook. Simply stated, it says that over the long haul (it cites 18 years from 1980 to 1998) if you were invested in the S&P 500 that you would have earned around 18% on your money. However if you missed out on the top 20 or 40 trading days during those 18 years the return on your investment would have dropped to around 13% from missing the top 20 trading days and it would have been less than a 10% return had you missed the top 40 trading days.
Of course, investing in “the market” or the S&P 500 probably wasn’t as easy to do back in 1980 as it is today. It wasn’t until 1993 when the pioneering big daddy of Exchange Traded Funds (ETFs) were introduced with the inception of the Standard & Poor’s Depositary Receipts (AMEX: SPY) also known as SPDRs, pronounced “Spiders”.
A few ETFs are listed below along w/ their inception date, common name, trading symbol and what index they represent.
1993 - Spiders - SPY - S&P 500
1995 - Mid Cap Spiders - MDY - S&P Mid-Cap 400
1998 - Diamonds - DIA - Dow Jones Industrial Average
If you are invested in a broad market based ETF then the advice about spending time in the market being more important than timing the market should probably be heeded due to the significant amount of opportunity cost, in terms of loss that can result from missing such a small number of days in the market – over the long term.
Full Disclosure - I do not currently own any of the securities mentioned in this post although I have held both SPY & DIA in my portfolio in the past.
I recently attended a fantastic retirement seminar by Fidelity and wanted to share some of the highlights here. The title of this post reveals one of the great adages quipped by the Fidelity speaker namely, It’s not market timing, it’s time in the market. He showed a pie-chart graph indicating where most peoples growth in the stock market comes from and I recall only 1.8% could be attributed to market timing. A great article I read from http://www.sharebuilder.com/ gives some quantitative numbers that really drives home the concept of staying in the stock market and not jumping in and out. The article is called The Virtues of the Long-Term Outlook. Simply stated, it says that over the long haul (it cites 18 years from 1980 to 1998) if you were invested in the S&P 500 that you would have earned around 18% on your money. However if you missed out on the top 20 or 40 trading days during those 18 years the return on your investment would have dropped to around 13% from missing the top 20 trading days and it would have been less than a 10% return had you missed the top 40 trading days.
Of course, investing in “the market” or the S&P 500 probably wasn’t as easy to do back in 1980 as it is today. It wasn’t until 1993 when the pioneering big daddy of Exchange Traded Funds (ETFs) were introduced with the inception of the Standard & Poor’s Depositary Receipts (AMEX: SPY) also known as SPDRs, pronounced “Spiders”.
A few ETFs are listed below along w/ their inception date, common name, trading symbol and what index they represent.
1993 - Spiders - SPY - S&P 500
1995 - Mid Cap Spiders - MDY - S&P Mid-Cap 400
1998 - Diamonds - DIA - Dow Jones Industrial Average
If you are invested in a broad market based ETF then the advice about spending time in the market being more important than timing the market should probably be heeded due to the significant amount of opportunity cost, in terms of loss that can result from missing such a small number of days in the market – over the long term.
Full Disclosure - I do not currently own any of the securities mentioned in this post although I have held both SPY & DIA in my portfolio in the past.
posted by Scott at
6:38 AM
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