Why time in the market beats timing the market when it comes to investing

Posted on

“Time in the market beats timing the market.”

It’s a common investment adage, sometimes described as the “golden rule” of investing. But constant repetition doesn’t make it any less relevant today.

“Timing the market” is a strategy by both professional investors and amateur stock-pickers. Their approach is to try and buy stocks when the value is low, and then sell when it’s high.

Sometimes it will work, and they will show a tidy profit. Frequently, however, even seasoned professionals fail to accurately predict market movements.

History and experience show that you’re more likely to see the value of your investments increase over an extended period if you simply sit tight and do nothing rather than constantly adjust your portfolio holdings. Read on to find out why.

Research shows the perils of trying to time the market

Research published in June 2021 by leading fund managers, Schroders, came up with some remarkable statistics that show the danger of trying to time the market rather than simply leaving your investments alone.

The headline revelation was that over 35 years – a common timeframe if you’re investing for your retirement – mistimed decisions on an investment of just £1,000 could have cost you almost £33,000 worth of investment returns.

The premise is based around the best 30 days of investment growth over that 35-year period and measuring the effect of missing out on those days.

If you’d invested £1,000 in the FTSE 250 in 1986, by leaving it alone your investment might have been worth more than £43,000 by the start of 2021.

Against that, if you’d tried to time the market, and you’d missed out on just the best 30 days of investment, you’d only have a fund value of £10,627.

In terms of annual investment return, that’s the difference between 11.4% each year or 7%.

Mistiming investment decisions can prove costly

Clearly the Schroders research cites extreme circumstances that are unlikely to have been replicated by an investor over that time period.

But what their analysis clearly shows is that by getting your timing wrong, you can cost yourself a lot of money.

Sometimes, the mistake can be due to overreacting to a particular event. As you’d have read in last week’s article, the FTSE 100 fell by nearly 4% on 24 February when Russia invaded Ukraine.

Many investors may have been tempted to sell, seeing it as the start of a long-term market decline. However, the very next day, the FTSE 100 recovered nearly all the ground it lost.

There’s no such thing as a crystal ball

Even the most experienced fund managers, backed up with teams of researchers and analysts find it hard to beat the market.

So how will an amateur stock-picker working on his kitchen table fare any better?

They might strike lucky once in a while. However, the Schroders research shows, doing nothing, remaining invested, and riding out a storm can be a more profitable long-term approach.

Let dividends work their magic

Another good reason for not over-managing your investments is the power of dividends.

Dividends are effectively a bonus paid to shareholders. Most are paid annually, although some blue-chip companies declare half-yearly or quarterly dividends.

One key thing to remember is that the value of dividends you receive is based on the number of shares you hold, rather than their value.

For example, this chart shows how the GlaxoSmithKline share price has fluctuated over the past five years.

Source: London Stock Exchange – GlaxoSmithKline (GSK) share price 10 March 2017 to 8 March 2022.

Yet, despite the fluctuation in the share price that you can clearly see in the chart, each quarter during this period they have paid a dividend of either 23p or 19p per share, regardless of the value.

So, if you hold GSK shares, or are invested in an accumulation fund of which GSK shares are a component, you would have benefited from a regular inflow of dividends.

The second key thing to consider with dividends is reinvesting the proceeds to buy more shares, unless you’re specifically using dividends as part of an income strategy.

Reinvesting dividends means you increase the number of shares you hold. So, in future years, you’ll get a potential dividend on more shares each time one is declared.

Sometimes doing nothing can feel counterintuitive, but may be the sensible option

When the Covid pandemic hit in March 2020, all major investment markets around the world fell sharply.

To an extent, the panic seemed understandable. This was a global pandemic for which – at the time – there was no vaccine.

As with many market downturns, an initial fall built up momentum as many investors saw the way prices were going, so decided to sell themselves.

The table below shows how the scale of the panic affected three of the world’s leading markets.

Sources: Dow Jones, DAX and Nikkei, all via Google Finance.

Yet, by the beginning of 2021, all three indices had recovered their lost ground, and have subsequently shown further growth as the post-pandemic recovery has continued.

The sensible response to the Covid crash was to do nothing, even though all your instincts – driven by media comment and peer pressure – might have been to follow the herd and join in the selling frenzy.

Get in touch

If you would like to talk to us about your investments, and any concerns you may have, we are happy to help.

You can email us at enquiries@blackswanfp.co.uk or contact your adviser on 020 3828 8100.

Please note

This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

The value of investments and income from them may go down. You may not get back the original amount invested. Past performance is not indicative of future performance.

We aim to keep our clients up to date on interesting and relevant financial news.

You can sign-up to receive our monthly newsletter by email, even if you’re not yet a client. Sign-up using the form below.

Client testimonials

I have always found Black Swan to be caring and understanding of my quirky lifestyle. I always feel they try to get me the best returns while respecting my current needs.

Sally Muir

A client since 2011

We would be very happy to recommend the support and service we receive.

Valerie Locks

A client since 2010

I have always been completely useless regarding finance - thankfully our financial adviser is not! I've retired with far more than I ever expected and investments continue to grow safely. So - thank you!

Bernadette Jane Warner

A client since 2000

Very happy with the professional service I have received and feel a lot happier now with my finances put in order.

Martin Field

A client since 2011

Julie Cooper was recommended to me by a work colleague. She has been very helpful, professional and has explained everything well. I would definitely recommend her services to anyone else who are interested in a financial review.

Steven Rooke

A client since 2018

…Service has been first class.

Hugh Fells

A client since 2012

My face to face meetings with Rob Young and Jessica Lyons have always been very open and understandable. My questions have been answered clearly and I have left feeling that my financial matters are in good hands.

Sandra Jack

A client since 2000

[A] safe pair of hands in a complex financial world.

Gary Middlehurst

A client since 2003

A reliable company with good communication skills and good knowledge of the financial markets.

Alan Evetts

A client since 2014

Maureen Pembridge is a long-time trusted advisor to our family. The market might fluctuate but her attention to detail is consistent.

Linda Burnard

A client since 2000

I am pleased to recommend Julie as a trustworthy financial advisor. She explains financial jargon in plain language, and always listens carefully to my particular financial needs and has helped me make the best of my savings.

Carolann Samuels

A client since 2010

I have always been satisfied with the way that Black Swan has handled my account. And I have always found the staff very helpful whenever I need to call the office.

Robert Anthony Matthews

A client since 2012

An excellent personal service from a person I know and trust.

Michael Dalton

A client since 2010

I am getting a very good services from Black Swan, they have got my investments sorted out which was in a bit of a mess.

Roy Jakens

A client since 2012

A good, efficient team providing clear ideas to shape a winning strategy.

Adrian Michael Levenstein

A client since 2011

Black Swan is a company to be trusted, with friendly staff and professional advisors.

David Brian Jennings

A client since 2017

I have been with Black Swan for many years. I have never wished to change anything. They give a good straight forward service.

Martin Barrett Brooks

A client since 2010

Andy Peters has been invaluable in firstly combining several pension pots and then giving excellent investment advice. It has given us a great deal of comfort to know that our financial affairs are in such good hands.

James Guillum Scott

A client since 2014

I find my financial advisor easy to talk to and feel that she understands my lifestyle. She is always available for help when I need her and explains in words that I can understand.

Margaret Ena Glasgow

A client since 2000

Andy is a first rate Director, excellent communicator and leader.

Ross Perry

A client since

Black Swan Financial Planning and Andrew in particular, are very clever at working out how risk averse we are, and coming up with solutions that we feel comfortable with. We are happy in the knowledge that we can continue to enjoy a comfortable retirement. Andrew Peters is a very, very friendly person who is great to chat to and easy to deal with. He explains things very clearly in layman’s terms, and if we still don’t understand, he explains it until we do!

Alan & Jane Dyer

Clients since 2012

We have always found Rob [Young] to be very approachable and knowledgeable. We have every confidence in the advice given and feel comfortable with the decisions we’ve made. There are certain opportunities that we wouldn’t have known about if Rob hadn’t brought them to light, which makes the advice good value for money as far as we’re concerned.

Peter & Pauline O’Halloran

Clients since 2013

Rob [Young] is extremely knowledgeable. I knew nothing about the different types of trusts which will not only secure my income in retirement, but also leave a legacy for my children. I’m glad that I sought his advice when I did.

Sarah Wilson

A client since 2015

I am extremely happy with the service afforded to me by the company and my adviser Julie Cooper.

Geoff Coxell

A client since 2010

My wife and myself have been dealing with Black Swan for a number of years. We have met with different representatives from the company over the years and have found all very helpful in their own way. We met with James [Anderson] a few years ago and found him very helpful and knowledgeable. He keeps in contact with us on a regular basis. We find the Company information very helpful and we feel very secure with our finances.

Andrew Kirchen

A client since 2015

I have always found my adviser to be easy to contact, very professional in his approach, yet friendly and understanding. I have a sense of an experienced company behind him, really on the ball financially and with good standards.

B McBean

A client since 2011

Partner with the most reliable and experienced team of advisers

Enter your details & we'll be in touch to discuss your needs.
Alternatively, contact us directly and speak to a member of the team.

    Subscribe to our newsletter