The saying “time in the market is more important than timing the market” is a key element that is hard to live by for a lot of individual investors.
They see their portfolio drop and want to move to stocks or mutual funds that have been outperforming their current allocations, however, most of the time that move is well past when they should have invested to reap any benefit.
The investor then notices the fund they jumped from has been outperforming the fund they moved to…which can then become a vicious cycle and cause them to shy away from the market all together.
Q: Why is time in the market so important?
One of the most advantageous aspects of investing early is compound interest. This is simply the investor earning interest on interest already accumulated.
Q: But what if I wait until I am making a lot more money and I can put in exponentially more money?
Starting earlier and investing less over the long term will perform better than investing more over a shorter period. For example, look at the below infographic from Visual Capitalist.
If you started investing at 20 years old, and you invest $250 each month with an 8% annual rate of return. By the time you reach 65, over 50% of your total portfolio would have come from money that you invested in your 20s.
Did you know:
The average holding period for a stock in the 1950s was eight years, in June 2020 the average holding period was only 5.5 months!
Are you struggling with long-term investing? Contact us to help plan your financial peace.
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