Principle 5

The Future is Uncertain

We agree with Nobel Prize-winning physicist Niels Bohr who said, “Prediction is very difficult, especially about the future.”

The good news is that successful investing doesn’t require the ability to predict the ups and downs of the stock market. It requires patience. You see, successful investing is not about timing the market; it’s about time in the market. 

Even if you had the ability to know exactly when the market was at its lowest point each year, making your annual investment contributions at those low points would make a surprisingly small difference in your long-term success. 

Over the course of 30 years, from January 1984 until December 2013, we looked at how two very different investors would have fared. We nicknamed them Lucky Lew and Steady Eddy. Both invested $3,000 per year. Lucky Lew, a perfect market timer, put all $3,000 into the market at each year’s low point. Steady Eddy put one-twelfth of that $3,000 ($250) into his investment account at the end of each month no matter what the market was doing. 

The Lucky Lew would have earned an average annual return of 10.1% vs. 9.4% for Steady Eddy who made no attempt to time the market. That’s a surprisingly small benefit for pulling off an impossible feat.

But that doesn’t stop people from trying to time the market. Research shows the average investor significantly underperforms the market because of failed attempts at market timing. 

We suggest that you tune out all the noise—the constant chatter of stock market prognosticators—and stick with the plan we’ll help you develop. You’ll sleep better at night and your portfolio will perform better as well.