I was thinking of updating one of my original posts from 2017. Does market timing really work? Short and simple – if people knew how to time the market, there would be extremely wealthy people doing it. We all know stories of people making it huge by timing the market, but those are extremely rare.
The Big Short, in particular, comes to mind when Michael Burry bet billions against the US housing bubble in the mid-2000s and made a fortune. Great movie, but I certainly would have been stressed to the max in that position.
Burry is currently calling for another stock market crash. He sold most of his positions but actually started a position in other stocks, namely Lockheed Martin (LMT).
One of my favorite authors has been talking about a crash for years now. Robert Kyosaki. He says nothing is sure this time. Stocks will crash, precious metals will crash, housing will crash, etc., and yet cash loses its purchasing power daily at a 7% inflation rate.
A quick Google search shows how long he’s been saying that. If you sold all of your stocks or even your real estate in September 2020, you missed out on one of the best years the market has ever seen. Accommodation in Canada for sure. I would certainly be angry with myself for taking his advice, and I can guarantee the woman would be even more angry.
I feel like 3-4 times a day someone on these Facebook investment groups asks if they should sell or post something about a possible crash. You can definitely see the feeling in the air changing. Obviously, growth stocks have taken a back seat, but if we look at other sectors, they are booming: financials, energy and materials.
It’s easy to look around and say, wow, things don’t look good. We have Russia about to invade Ukraine, China and Taiwan issues, Covid, massive debts around the world, inflation numbers, trucking issues between Canada and the United States , and I would say it’s safe to say a huge real estate bubble in Canada.
But we also see the UK announcing next week that it will end almost all Covid protocols. Is this the start of countries opening things up around the world? If so, this could be the start of a massive boom. I can personally say that I can’t wait to go back with the children, to go do more activities, etc. Everyone is locked in their house again and is dying to get back to normal. I wouldn’t want to be out of the market if that were to happen, we could have another good year yet again.
At the same time, I think the market needs some sort of pushback. It’s generally good for the market. And even better for us in the accumulation phase, cheaper Drips who don’t like to buy big companies at an even lower price per share while getting a higher starting dividend yield.
History has shown us time and time again that time in market outperforms market timing. Morningstar has a great article highlighting the history of the market since 1925. It basically proves why you should stay invested. A strong point that stands out is that the longer you stay invested, the lower the risk of loss.
- Of the 94 one-year periods since 1926, 25 have ended in a loss.
- Of the 90 overlapping five-year periods since 1926, only 12 have resulted in a loss.
- Of the 80 overlapping 15-year periods since 1926, none has resulted in a loss.
As a long-term investor, this chart/breakdown says it all. Embrace the dips; in the future, you’ll probably look back and be glad you did.
What’s your plan?
I think personal finance depends on your plan. It’s messy in every way if you don’t have a plan. You know that when your mortgage payment comes, you better pay it. You get that electricity bill, pay it instantly, or put a note on an app to pay it the day it’s due. Either way, both work, but one is much simpler. Just pay that bill right now and throw it away. Do you invest based on how much money is left at the end of the month or do you take the pay-your-own-first approach?
We are in the process of refinancing our home and using this equity to maximize some of our accounts. The market is near historic highs. Is this the perfect time to do it? Who knows. I will stick to the weekly or bi-weekly buying average plan. Waiting for a withdrawal seems like a silly mistake. Would a 10% correction be enough to get people to reduce their cash reserve? A 10% decline on the TSX would bring us back to approx. May 2021. I’m sure there are people who were expecting a 10% pullback before that. Meanwhile, cash continues to lose its purchasing power due to high inflation.
Make your plan and stick to it, history proves market timing doesn’t work on a long term horizon.
What are your thoughts? If you were to receive a lump sum of money, would you put it to work right away or would you put it every week?
I wish you all the best, put that money to work and let’s collect their dividends.
Editor’s note: The summary bullet points for this article were chosen by the Seeking Alpha editors.