By Alan Steel
It seems the “investing herd” want to either:
- get rich quick,
- get safe even quicker, or
- ride the Index Tracker pony to the land of “Instant Gratification 2.0.”
Well, sorry to drop a logic bomb on the party folks, but those things are all just shortcuts to thinking – like sugar plum fairies dancing in their collective heads – predicated on trying to time the market, instead of taking advantage of time.
And they don’t work. They just make you poor.
Market timing is all about trying to escape a big drop – a black swan event that, by its nature, is not something you can ever spot coming – or capitalise on a quick gain.
That’s a tricky business that even the best in class (Lynch, Soros, etc.) get badly wrong.
But the investing herd is an aimless beast, devout to media suggestion and so-called expert opinion, particularly when it’s predicting Armageddon.
Boy, do crowds love a good apocalypse. They thrive on them.
What they don’t like is boring advice about things like long-term investing and compound interest.
But that’s how you make money; by ignoring what everyone else is reacting to, putting a strategy in place, and then leaving it alone and letting it grow.
If you’ve not yet thought about your path to financial security, then why not do that now.
Think of it like a small tree you plant in the backyard; you don’t pull it up by the roots every few weeks to see how it’s doing. You keep watering it and one day it’s a mighty oak….or whatever your arboreal favourite might be.
Let me give you an example from Eric Bleeker of The Motley Fool. Eric writes:
“Many investors focus on timing the market, which has proven to be a terrible wealth-building strategy. Over a recent 20-year period (1993-2013), the market returned a very respectable 9.22% annually.
“Yet, if you missed the 10 best market days – trying to outsmart the market by jumping in and out of your investments – your return dropped to 5.49%. If you missed the 20 best days, your return plummeted to 3.02%.Over time that difference absolutely destroys your ability to grow wealth.
“Simply growing your wealth at that market rate (9.22%) means that over 20 years, you would have turned a $200,000 nest egg into $1,167,006. You’d be a self-made millionaire!
“But if you missed the best 20 market days (and saw a 3.02% return), over those 20 years your hard-earned money would have grown to just $375,512.
“In short, after inflation and cost of living… at best, you’d be breaking even. At worst, you’re falling behind!
“So, let’s say it one more time. Take advantage of time, not timing.”
And how do you to start this process? Well, first you go and get some good advice.
And then you follow it.
Because after all, it’s your money.
Want to know more?
Check out HNW Magazine’s Investing Secrets of Self-Made Millionaires sectionhere.
And look out for our forthcoming report “The 7 Investing Secrets of Self-Made Millionaires” – out soon.
Alan Steel is Chairman of the award-winning investment firm Alan Steel Asset Management based in Linlithgow, Scotland.