Principle 5

The Future Is Uncertain

We agree with Nobel Prize-winning physicist Niels Bohr (or perhaps it was Yogi Berra) 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. Successful investing isn't about timing the market; it's about time in the market. 

Even if you had the ability to know exactly when the stock 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. 

Let's look at how two very different investors — Lucky Lou and Steady Eddy — would have fared over the course of 20 years. We'll assume each invested $3,000 annually beginning in January 1999.

Lou, a remarkable market timer, put his $3,000 into the market exactly at each year's low point. In contrast, Eddy simply put one-twelfth of his $3,000 ($250) into his investment account — no matter what the market was doing.

Over the 20-year period (1999-2018), market-timer Lucky Lou earned an average annual return of 8.4%. Not bad! But how did Steady Eddy do, having ho made no attempt to time the market? His average annual return was only slightly less: 7.4%.*

In other words, Lou got a surprisingly meager benefit for pulling off an unlikely (if not impossible) market-timing feat!

And unlike the remarkable Lucky Lou, the average investor who tries to time the market doesn't come out ahead. Abundant research shows the average investor underperforms the market because of failed attempts at timing. 

We suggest you tune out the market-timing 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 likely will perform better too.

*These annualized returns are based on the 1999-2018 performance of the S&P 500.