On average more investors benefit from an early investing strategy over a long time frame than those who try to move in and out of the market to buy low and sell high.
Investing favors long-term investors over traders and speculators
Put another way, “time in the market beats timing the market.”
But a whole group of speculators, traders, spend their time trying to time the market and make quick profits.
Timing the market is a different game; it is not for most investors who have limited time, no access to privileged information, and limited finance to ride out volatility swings that can often lead to crushing margin calls, which can wipe out capital when using high leverage.
Jim Rogers, billionaire value investor, who has benefited from an early investing strategy, said he is hopeless at timing the market. He often jokes about being the world’s worst trader.
“time in the market beats timing the market”
We haven’t the faintest idea what the stock market is gonna do when it opens on Monday — we never have,” said the legendary value investor Warren Buffett at the company’s annual meeting in April 2022.
Warren Buffett is a long-term value investor who sees opportunities in value stocks when the price falls because he can buy more of the company with a given amount of capital.
So investors benefit from early investing, bearing in mind that over 50% of a total portfolio comes from your savings invested in your 20s, according to research conducted by Fisher Investments.
Ken Fisher, chairman of Fisher Investments recommends that investors should avoid trying to time the market, and he explains with three examples how early investing long-term beats on average all other investing strategies.
“Consider three make-believe siblings, each with $10,000 to invest in US stocks each year from 1977 to 2018 – a stretch that includes five bear markets.
“We haven’t the faintest idea what the stock market is gonna do when it opens on Monday — we never have”
Pretend they bought the Standard & Poor’s 500 stock index (broader than the Dow).
Janette, with perfect timing, invests at each year’s monthly market low, earning each year’s full upside. Jebediah, a terrible timer, invests at each year’s monthly market high, missing more gains and capturing more downside. Jackpot, the clever youngest brother, knows he has no timing ability. He invests on the first day of each year.
Fast-forward to June 2018. Janette’s 41 years of perfect timing earned an average annual return of 11.4 percent for a cool $8.2 million. No-timing Jackpot was close behind, with an 11.1 percent return and $7.8 million – still great. Even terrible-timing Jebediah got a 10.8 percent return – turning his $410,000 in contributions into $6.7 million. Sure, it’s rewarding enough, but lagging little brother, no-timing Jackpot by $1.1 million is a high price to pay for bad timing.
Fancy timing increases the likelihood of errors. People want to buy after stocks rise, not after they drop. Were you eagerly buying this March, when the early-year correction avalanched? Or in February 2016 as headlines hyped election risks at the bottom of an eight-month slide? Or in March 2009 at the depths of the financial crisis? As I said last week, the best time to buy is surely when people least want to,” wrote Ken Fisher, Executive Chairman of Fisher Investments.
“The early investment strategy, over the long term, does not jive with a culture that wants immediate gratification where everything is on demand” – Win Investing
Early investing benefits from compound interest
Compound interest is the benefit of earning interest on the interest. Here is a simple example to explain the benefit of compound interest.
For example, say an investor makes an initial deposit of $1,000 in an account returning 10% annually. By the year’s end, the investor earns $100 in interest. So in the second year, the total amount of capital invested is $1,100, and assuming the annual interest rate is the same, that investor will earn $110 in interest. Compound interest keeps growing over the long term.
Put another way, money makes money and is employed well and propagates like rabbits.
Long-term early investing strategy has declined over the decades, which could be why the wealth divide has increased.
Prudence, saving, and investing is not sexy in the here-and-now culture where flashing the latest toys to gain status acceptance is more appealing. It is the YOLO culture where credit cards are maxed out to the maximum with selfies mimicking celebrity lifestyles in exotic holiday locations with the latest toys and all documented on social media.
The early investment strategy, over the long term, does not jive with a culture that wants immediate gratification where everything is on demand.
Prudence, sacrifice, stamina, and stoicism qualities are all needed for an early investing strategy.
So it is no surprise that the long-term investment strategy is on the decline, and so is the widening wealth gap. Capitalism rewards capital, investing, more than work. Moving up the food chain means working to acquire savings, which is capital for investing and is the mindset for accumulating wealth and prosperity.
“Despite the benefits of long-term investing, investors today decide to hold for shorter holding periods and quick gains over long-term growth” – Win Investing
Today, the early investment over the long-term mindset has gone
Despite the benefits of long-term investing, investors today decide to hold for shorter holding periods and quick gains over long-term growth.
For example, according to the NYSE, the average holding period for stocks in the late 1950s was 8 years. By June 2020, the average holding period had dropped to 5.5 months.
Put another way, an entire generation of young investors have become disgruntled gamblers, blaming capitalism for their failures.