One of the clearest lessons from history is that trying to time moves in and out of markets to catch the peaks and troughs rarely works, says John Husselbee – and yet so many investors still try to beat the odds
A common saying in investment circles goes that timing the market is a fool’s game, whereas time in the market – ie keeping your money invested – will typically lead to solid results. And, to that end, new research from Morningstar makes this point in the starkest possible terms.
In response to the question ‘is there a good time to buy or sell actively managed funds?’, the report concludes with a resounding no, based on the fact most equity performance over multiple decades has come down to just a few months. Being out of the market for these so-called critical months can have a massive impact on overall wealth generation.
To put some numbers on this, Morningstar revealed that, from 1926 to 2018, US stocks owed all their outperformance to just 51 months, or less than 5% – and if investors had owned those companies for all 1,063 months apart from those 51, they would have failed to beat cash.