Kitchen Timers, Market Timers, and Time (Part 2)

What good is market timing?

Global Market Update - JohnPierpontMorgan
Source: Wikipedia

When JP Morgan was asked what the market would do, his answer was, “It will fluctuate.” It’s almost impossible to predict short-term movements. Your emotions get engaged and play tricks on you. But long-term trends are another matter. A little reflection and analysis gives some perspective.

For example, oil prices are have fallen dramatically in the past six months, and are unlikely to recover soon. So consumers have more money in their pockets from paying less for gas, heating oil, and other energy-related items. Whatever benefits from discretionary spending—restaurants, resorts, discount airlines—will tend to do better. Identifying and riding trends like this isn’t market timing, it’s using common sense to identify opportunities.

From up close, it’s hard to see where things are going. But if you step back, and look at things from a longer-term perspective, the trends are a little clearer. Right now we have a strengthening economy and a stronger consumer. That should help the overall market, although there will be winners and losers along the way.

But what investors really need isn’t market timing, but time in the market. Over the course of ten years, a 7% return doubles your money. Over twenty years, it quadruples your money. And over thirty years, it will grow your principal 8 times. Put another way, suppose three investors all put $10 thousand aside per year, and they all earn the same 7% return. The first begins at age 22, the next starts at age 30, and the third starts at age 40. By the time they are 65, the 40 year-old saver has $1 million, the one who started at age 30 has $2.5 million, and the person who began saving at age 22 has $4.7 million—just from saving and investing $10 thousand per year. Clearly, there are huge benefits to starting early.

“To everything there is a season,” says the book of Ecclesiastes. Stay focused on the long-term outlook. Don’t sweat the small stuff. And enjoy the ride.


Douglas R. Tengdin, CFA
Chief Investment Officer
Phone: 603-224-1350
Leave a comment if you have any questions—I read them all!

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