Timing The Market Is Harder Than It Looks: Invest For The Long-Term

Just when the U.S. economy seemed to be hitting its full stride for the first time since the Financial Crisis, concerns over China’s economy have U.S. stocks once again on shaky ground. However, the recent short-term market weakness provides a useful reminder for long-term investors: the market can be extremely unpredictable from day-to-day.

Guessing which way the market is headed in a given week, month or year is extremely difficult, if not impossible. If you are relatively new to investing and have gotten burned trying to guess short-term market moves, don’t feel bad. Some of the greatest minds in investing can’t always predict the market.

Buffett’s Blunder

Between 2006 and 2008, one of the most iconic investors of all time, Warren Buffett, took a massive 5.7 percent ownership stake in ConocoPhillips COP just when the oil market was peaking. From 2007 to 2008, this single investment cost Buffett’s company Berkshire Hathaway Inc. BRK about a $2.6 billion paper loss.

The fact that one of the most successful investors of all time can screw up so bad in timing the market is even further evidence that it isn’t as easy as it may look. However, just because the market is nearly impossible to predict in the short-term doesn’t mean that long-term investing isn’t a very powerful tool.

Diversification + Time = Profits

Including all the up years and down years and market crashes, depressions, recessions, booms and busts, from 1900 to 2000, the U.S. stock market produced an average annual return of 10.4% per year. By comparison, the highly-anticipated Federal Reserve interest rate hike in December raised the Fed Funds Rate to only 0.5%.

Don’t Sweat The Short-Term

Stash is one example of a quick and easy way to start investing responsibly for the long-term, using a exchange-traded fund (ETF) choices and fractional shares. Passionate investors can try “I believe” investments to focus on a particular theme, like the “Do The Right Thing” ETF, its “Defending America” ETF and its “Internet Titans” ETF.

The daily swings of the stock market can be exciting and tempting to new investors. However, if you are young and/or new to investing, the smart bet is to make a diversified, long-term investment in the market over time and not sweat the short-term swings.

Disclosure: the author holds no position in the stocks mentioned.