Timing is everything.
Justify won the 150th running of the Belmont Stakes to capture the Triple Crown with a winning time of 2:28. If Justify had raced Secretariat in the 1973 Belmont, he would’ve lost by 4 seconds.
Carl Lewis set the world record for the 100-meter dash in 1991 with a time of 9.86 seconds. In 2009, Usain Bolt lowered his own world record to 9.58 seconds, .28 seconds faster than Lewis.
Jules Verne wrote Around the World in Eighty Days in 1873. An 80-day trip in 1873 was a record. Today, the Space Shuttle can orbit the Earth in 90 minutes.
An investor who purchased the Vanguard 500 Index fund on March 9, 2009, the market low, generated an average annual return of 18.51%. His $10,000 investment is now worth $47,971. If he bought the same fund on October 1, 2007, the market top, his return fell to 7.54% per year. A $10,000 investment is now worth $21,726. He still doubled his money by investing at the top but not as impressive as if he had caught the low.
In reality, you won’t invest at the top or bottom of a market cycle. A more realistic scenario is that you’ll invest in between the two. For example, if you invested $10,000 per year from 1998 to 2018, you made 8.14% per year. Your $10,000 annual investment is now worth $547,321.
Investors seeking safety may look to the bond market. If you invested $10,000 in Vanguard’s Total Bond Fund on March 9, 2009, your average annual return was 3.59%. A $10,000 investment is now worth $13,846. Investing in this same fund on October 1, 2007, generated an average annual return of 3.80%. A $10,000 investment is now worth $14,887.
A bond fund is more stable than a stock fund, but the returns are considerably less. Despite the volatility in the stock market, it still pays to own stocks for the long run and hold them through all market conditions. If your time horizon is 3 to 5 years or more, you need to own stocks.
Time is more important than timing.
Time is on my side, yes it is. ~ The Rolling Stones
June 28, 2018
Bill Parrott is the President and CEO of Parrott Wealth Management firm located in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process.
Note: Investments are not guaranteed and do involve risk. Your returns may differ than those posted in this blog.