Avoid The Timing Trap: Embrace A Diversified, Long-Term Strategy

To quote the famous Yankee Hall of Fame catcher Yogi Berra, “it’s tough to make predictions, especially about the future.” 

Most people have heard the phrase “it’s time in the market, not timing the market that matters.” In this blog post, LCM Capital Management will explain why we believe it is imperative for investors to stay “in the market” irrespective of recommendations or suggestions of an impending bear market or correction.

If 2023 has taught investors anything so far, it should be, avoid listening to the “experts” and doomsayers. Timing the market is a fools’ game and attempting to accurately predict tomorrow’s weather let alone tomorrow’s market direction consistently is impossible, especially over the long-term.

The markets always go up and always go down. The stock market has however historically demonstrated its resilience and ability to recover after such corrections as 2002, 2008 & 2022 just to name a few recent ones. Despite these short-term corrections, and they are just that, “short-term,” the market tends to exhibit an upward bias over extended periods. By staying invested, especially in line with one’s risk tolerance, investors can ride out temporary downturns and capitalize on the aforementioned historical upward bias of the market over the long run.

Studies have shown that attempting to time the market can lead to missed opportunities, as the market often experiences sudden and unpredictable shifts. Think March of 2020, the S&P 500 was down almost 30% through the first three months of the year as fears of Covid set in. It ended the year up over 16%. Rather than trying to outsmart the market, investors should focus on diversifying their portfolios and staying invested for the long-term.

By staying invested in the market, this allows investors to reap the benefits of both dividends and compound interest. Dividends provide a regular income stream regardless of market conditions. Over time, reinvesting those dividends can significantly enhance investment returns. Additionally, compound interest amplifies returns by reinvesting earnings back into your investments, leading to exponential growth over time. By staying invested, investors harness the power of compounding and maximize their wealth accumulation potential. Case in point, the historical average yearly return of the S&P 500 over the last 20 years as of the end of April 2023 is 10.05% (7.335% when adjusted for inflation). This assumes dividends are reinvested.

It’s a cliché but investing in the stock market is a marathon and not a sprint. It requires resilience, patience, and a long-term perspective. While news of an impending bull or bear market can generate apprehension or overexuberance and wonderful news headlines, investors should not be swayed by the short-term predictions of analyst or strategist. Remember, every transaction whether it’s in the stock market or art market needs a buyer and a seller. The problem is, both parties think they are right. I am often reminded of the famed deceased market strategist Joe Battapaglia who once answered the following to his prediction that the NASDAQ would rise 55% in year when it actually dropped 21%. “like in baseball, if you hit .350 or .500, you’re doing pretty well.” I have yet to find a single investor who would like to live by that investing mantra.

Stay the course, stay invested and benefit from the market's historical resilience. Embracing a diversified, long-term investment strategy allows investors to navigate market volatility with confidence and maximize their potential for wealth creation.