158: Market Timing vs. Time in the Market

Welcome to The Invested Dads Podcast, simplifying financial topics so that you can take action and make your financial situation better. Helping you to understand the current world of financial planning and investments, here are your hosts, Josh Robb and Austin Wilson.

Austin Wilson:

All right. Hey. Hey. Welcome back to The Invested Dads Podcast, a podcast where we take you on a journey to better your financial future. I am Austin Wilson, Research Analyst at Hixon Zuercher Capital Management.

Josh Robb:

I’m Josh Robb, Director of Wealth Management at Hixon Zuercher Capital Management.

Austin Wilson:

That’s right, you are.

Josh Robb:

Austin, how could people help us with our podcast?

Austin Wilson:

Well, we would love it, first of all, if you would subscribe, if you’re not subscribed already, we would love it if you do that. We would also love it if you would visit our website and sign up for our weekly newsletter to get notified each and every Thursday when our new episodes drop, including a nice little email with a synopsis and some show notes. So today, Josh.

Josh Robb:

Yes.

Austin Wilson:

It’s no doubt that we’ve had choppy year. Let’s say that.

Josh Robb:

It’s been volatile.

Austin Wilson:

It’s been volatile, and I think sometimes people just get in the mistake of thinking that docs go up all the time.

They don’t, FYI, as this year’s pointing out. But it’s also happened in cycles like this many, many, many, many times before. We are going to be discussing today the impact of timing the market and see if it’s really all it’s cracked up to be. See if it’s really as important or even relevant in the grand scheme of things. Let’s talk about that today.

Josh Robb:

Yep. This idea came from years ago, Ben Carlson, who we had on.

Austin Wilson:

We’ll link that in the show notes.

Josh Robb:

Yes, it was a great one. He had written a book about those different bubbles and times where people were kind of tricked into investing-

Austin Wilson:

Cool stuff, go in the show notes.

 

[1:38] – Meet Bob: The Worst Market Timer Ever

 Josh Robb:

But he had tweeted about this kind of idea. He made up a person, Bob, and kind of talked about them and their investment experience.

Austin Wilson:

Bob.

Josh Robb:

And then CNBC had an article referencing that.

We’ll have that on our show notes, too. But let me first describe Bob. Bob is the worst timer of investing.

Austin Wilson:

That’s pretty bad.

Josh Robb:

He’s the worst investor in the world, but he’s actually a good saver when it comes down to things. I wanted to simulate an average person. Bob says, “I’m going to save $2,000 a year,” and Bob’s going to start when he is 16. He gets his car; he gets a job.

Austin Wilson:

What a guy.

Josh Robb:

He’s like “I’m going to start saving. I’m going to save $2,000 each year,” and then every decade he’s going to add a thousand dollars to that savings. That simulates over time an increase in salary and an increase in your savings. Something that we talk about all the time. He is going to work until he’s 65. Works his whole life retires at 65. The thing with Bob though is although he saves his money, consistently saves that $2,000 a year.

He saves it in his savings account. Bank account just kind of sits there. He does not invest it, until he feels really good about investing.

Austin Wilson:

Of course.

Josh Robb:

Bob being the worst timer in the world, he times it in right before the market crashes.

Austin Wilson:

Every single time.

Josh Robb:

He builds up that money and then he puts in lump sums into the stock market. We’re just using the S&P 500 as a reference point. But he invests it in big chunks right before the stock market has a downturn.

Austin Wilson:

That’s really bad timing.

Josh Robb:

It is very bad timing.

Austin Wilson:

It’s like if you look at the market cycle, you’re at the euphoria stage, and when everything feels like you can’t, it’s just going up at all the time. It can’t go wrong.

Josh Robb:

What can go wrong? Yep. He’s in.

Austin Wilson:

That’s when he’s putting it in. He’s in all of it.

Josh Robb:

For simplicity stake, I just did the beginning of the year of a downturn year. I went backwards in time, used real historical returns of the S&P 500, and this is not total returns, but just price returns.

Austin Wilson:

Correct.

Josh Robb:

Just wanted to point that out, if somebody was really curious about all the ins and outs of what we’re doing.

Austin Wilson:

Okay.

Josh Robb:

Over his working career, he saves $211,000. That’s $2,000 plus the increases of time.

Austin Wilson:

That’s his money.

Josh Robb:

That’s the money he saved. Then he periodically had invested that, all the way up until, because we know there was a downturn in 2020. He invested the chunk, and then there’s another here. This year we had a downturn and I had him retiring and I ran it all the way through September 30th of this year.

Austin Wilson:

This is fresh, hot up the press.

Josh Robb:

Not only did he do all that and bad time himself into the market, he chose the worst time to retire, too.

Austin Wilson:

Oh yeah.

Josh Robb:

Right after everything dropped. Okay, so just wanted to point that out. Bad Bob.

Austin Wilson:

Bad Bob.

Josh Robb:

Did not do a good job. Okay? So, we’re going to talk about what does his portfolio look like? How can we learn from Bob? That’s the things we’re going to talk about. But I like suspense, Austin. I want to let the listeners think through this whole thing, Bob and his investing of the $211,000 over a 47-year working career and think. “How did that end up?”

 

[4:20] – Dad Joke of the Week

 Austin Wilson:

While they’re thinking about it. I got a dad joke for you.

Josh Robb:

All right. I like to take a drink right when you tell me, just so I might spit it out.

Austin Wilson:

Yeah, this is a funny one.

Josh Robb:

All right.

Austin Wilson:

Listen to this one. What does a baby computer call his father?

Josh Robb:

Ooh, I would say data.

Austin Wilson:

That’s exactly right.

Josh Robb:

Oh, I got it.

Austin Wilson:

Data. Then I saw another funny one. This is from menshealth.com. I don’t know why they post dad jokes. Dad jokes are healthy, obviously.

Josh Robb:

Dad jokes are good for everybody.

Austin Wilson:

This is, it’s not more of a thought, more of a dad joke. But I only seem to get sick on weekdays. I must have a weekend immune system.

Josh Robb:

A weekend immune system. I like it.

 

[4:53] – Bob’s Investing Results

 Austin Wilson:

That is pretty good. We’re back to Bob.

Josh Robb:

Bob.

Austin Wilson:

Bobs had a really unfortunate experience in terms of timing, but how has his investing career worked out in terms of actual dollars?

Josh Robb:

Yeah, so I’d ask you your opinions, but you’ve heard me talk about this in the past. He put in a total of $211,000 of his own money over, again, that 47ish years of investing from when he started working as a high schooler all the way through retirement, 65.

Austin Wilson:

Right.

Josh Robb:

All right. When he retires in the middle of this big downturn we’re experiencing right now, September 30th, the market was down at that point. What?

Austin Wilson:

25ish.

Josh Robb:

Yeah, 20 some percent. He ended his career with over a million dollars in investments. He was a millionaire.

Austin Wilson:

Despite being the worst timer of all time.

Josh Robb:

Not only being the worst timer, he chose to retire when he lost about 25% of his value.

Austin Wilson:

That’s true.

Josh Robb:

It would actually be higher than that starting the year. But he had $1,108,030.89 to be exact.

Austin Wilson:

But who’s rounding?

Josh Robb:

Yeah. whatever. Again, we’re just using price returns and S&P, and I was just timing in periodically. Okay. That’s pretty crazy. It averaged to be a 7% rate of return for him, when you look at his contributions in and then the ending value, you use the IR calculation for that, and you get this fund-

Austin Wilson:

And that’s a 7-7.1% just on price.

Josh Robb:

Yep. If he reinvested dividends, even more, who knows?

Austin Wilson:

Wow, that is actually pretty impressive.

Josh Robb:

He only invested right before downturns. Every time he put his money in, by the end of that year, the market was down. He had lost a good chunk of what he had put in, and the value overall. But he had 47 years for that money from when he is first started working and technically, he started saving then, he actually didn’t invest until a handful of years later when the first downturn was showing up. Either way, crazy to think about. That this guy, when you look at that return, seven percent is nothing to sneeze at. That’s pretty good to have an average return there, being as bad as you were at putting the money in. I was actually surprised with that result. What does that mean?

 

[6:55] – What Do These Results Mean for Investors?

Josh Robb:

Where do you take that when you think about that?

Austin Wilson:

Yeah, it makes me think that when you’re watching the news, you’re watching CNBC. You’re watching whatever business news channel you want to watch. A lot of emphasis is placed on short term investing. A lot of emphasis is placed on, “Oh, big stock selloff or big stock rally or whatever,” when, that might be true, it’s just a very short viewpoint. I think that one of the reasons that Bob was so successful was he didn’t make a bad choice in terms of he didn’t sell when things fell apart, he kept doing the same, sticking to the plan the entire time.

Josh Robb:

Kept saving, could have worked on his investing, but kept saving.

Austin Wilson:

Exactly.

Josh Robb:

Did his thing give up.

Austin Wilson:

Yeah, I wonder what his return would’ve been if he actually would’ve dollar cost averaged would’ve been even better.

Josh Robb:

Oh yeah.

Austin Wilson:

Well, a lot better.

Josh Robb:

Yep.

Austin Wilson:

This is just evidence that the average investor doesn’t need to overthink it. Don’t overthink it. Don’t try and time the market and first of all, Bob’s the worst timer ever and he got an okay return, in terms of buying at the peak. But just being an average investor who’s periodically investing is going to smooth out that and do even better. Just keep it simple is what I would say. I take this as encouraging them, anyone can do this. Given a long enough time horizon, you can do this even if you are investing some money when it’s very high, the market, you’re going to also be investing some when it’s really low, just don’t overthink it. It’s really not that hard. But I liked another thing that he did that I think was super important, was he was adjusting his investment dollars periodically.

You did that to signify increases in salary or whatever. That’s good. We should be doing that, as well. That brings us back to things like the 50/50 rule that we’ve talked about where if you’re getting a raise, some of that raise you should put into more investments, and that’s really going to help juice your savings over time. Those are things I just was encouraged by this, but keeping a long enough time horizon and sticking to it all the time is really going to be key. Because Bob probably didn’t look at his statements all the time and get freaked out by it.

Josh Robb:

No, but early on it would’ve been hard, too. Because he would’ve been below his value every time, he had those drops.

Austin Wilson:

What about you Josh? What thoughts did you have?

 

[9:01] – Time in The Market is Better Than Timing the Market

 Josh Robb:

So, I had a couple. The first one is, and you kind of hit on it, but the time that you are investing is more powerful than when you start or choose to invest.

Time in the market is better than timing the market. Historically speaking, there’s never been a 17-year period in the stock market that you’ve ever lost money. That just means the longer you give your time, the higher your probability of growing your money. He gave it plenty of time, and it ended up working out. The other one, and this is what I talk to young people a lot about is being a millionaire’s kind of this “Whoa,” type of thing. It’s actually not super hard to get there.

Austin Wilson:

No.

Josh Robb:

If you’re disciplined. For instance, here’s the worst timer, he got there. He put in a total of $211,000, which is a big chunk of money in dollar terms.

Austin Wilson:

Oh yeah.

Josh Robb:

But when you break it down, he started with $2,000 a year savings. That was $167 a month. Not crazy.

Austin Wilson:

No.

Josh Robb:

It’s not a small amount of money when you first starting out, but not a huge dollar amount.

He just consistently saved and was able to every decade increase that savings because he lived below his means. It comes back to, I run those different calculations and we talked, especially with young people about the Roth IRA, we’ve talked about that in the past, in other episodes, on how powerful of a savings vehicle that is. Because you don’t pay tax on the growth, but you could put up to $6,000 this year into a Roth IRA, which is more than he started doing. But there’s opportunities to save like this to get to that place where you’ll have potentially over a million dollars at the end of your working career.

Austin Wilson:

Absolutely.

Josh Robb:

It’s not hard. You don’t have to hit the lottery. You have to be disciplined and consistent at your savings, and then give the market time to do what the market does.

Three out of every four years is positive in the stock market. One out of every four years is down. We’re experiencing that right now. But in order to get those long-term results, you got to stick through this. Don’t try to get out and then get back in. Those things are just so hard to do. Yeah, maybe some people get it right every once in a while, but in the long run, like we saw earlier last month, depending on when you’re listening to this. At the end of the fourth quarter of 2022, we saw a really positive up day right after we had some inflation news, in November. Those are days that really help you to long-term recover from these downturns. But if you’re in and out, you could miss those, and it makes it a lot harder. Long story short, like you said, don’t panic. You do your job and save and allow the market to do what historically it’s done is to grow wealth.

 

[11:26] – Focus on Long Term Investing

 Austin Wilson:

That’s something that the long-term focus is so important. Think about your timeframe when you’re investing. If you’re in your twenties, your thirties, twenties and thirties specifically, you’ve got 30 some years for this money to compound. You know what? If you’ve got more than 20, historically speaking, you’ve never lost money in the market. Never. That’s, obviously, no guarantee of the future, but that’s the way it’s worked because companies’ earnings continue to grow as the economy continues to grow. That’s what drives the market up over time, and that’s going to continue to drive the market up over time. Give it time, and your portfolio value will reward you.

Josh Robb:

Yep. There’s the rule of 72, which just says you take 72 divided by whatever your rate of return is, and that’s how often it takes your money to double, just a math thing, which is pretty cool.

You got a 7% return, so every 10 years over that timeframe it kind of doubled and you looked at that, right? It was almost a five-decade career and you put in $200,000, you kind of just do your head math.

Austin Wilson:

Makes total sense.

Josh Robb:

And you’re like, “Hey, I can see where it gets there.” That’s, again, you don’t see that early on, because doubling of smaller numbers, even though it doubled, you don’t see or feel that in total terms, but near the end when you’re doubling $500,000 and it doubles after that 10 years to a million a’s big deal.

Austin Wilson:

That’s huge. Right.

Josh Robb:

But $500 to a thousand-

Austin Wilson:

Doesn’t feel like that.

Josh Robb:

It doubled the same amount.

Austin Wilson:

Yeah, exactly.

 

[12:43] – Final Thoughts on Timing the Market

 Josh Robb:

But it’s just dollar terms, it feels different. Don’t give up. In the early stages, you’re not going to see those movements, but it’s doing what it needs to do and you’re compounding that. Stick with it. Do your job and save. The market historically provides the best opportunity to grow your money.

Austin Wilson:

Yep.

Josh Robb:

I don’t see anything changing going forward.

Austin Wilson:

No.

Josh Robb:

I think the stock market is still the best opportunity to grow your money.

Austin Wilson:

Absolutely.

Josh Robb:

Hopefully, you’re a better timer than Bob when it comes to investing. Like Austin mentioned, to do that, you just have to consistently add in and not try to pick a time.

Austin Wilson:

Absolutely.

Josh Robb:

But regardless of how that works out, if you’re like Bob and are consistent, it should help pay off long term.

Austin Wilson:

Absolutely. Please share this episode with any friends or family who might have been asking you-

Josh Robb:

All the people you know named Bob.

Austin Wilson:

All people named Bob. Well, these people may have been asking you, “Hey, is now a good time to buy?”

Josh Robb:

Yes.

Austin Wilson:

Well, of course, if according to this, these numbers, it’s not a bad-

Josh Robb:

Any time is a good time to buy.

Austin Wilson:

It’s not a bad time to buy, right? Again, we’d also love it if you subscribe and leave us a review on Apple Podcast or Spotify or wherever you are listening to this episode. Until next Thursday, have a great week.

Josh Robb:

All right. Talk to you later.

Austin Wilson:

Bye.

 

Thank you for listening to The Invested Dads Podcast. This episode has ended, but your journey towards a better financial future doesn’t have to head over to theinvesteddads.com to access all the links and resources mentioned in today’s show. If you enjoyed this episode and we had a positive impact on your life, leave us a review. Click subscribe and don’t miss the next episode.

Josh Robb and Austin Wilson Work for Hixon Zuercher Capital Management. All opinions expressed by Josh, Austin, or any podcast guest are solely their own opinions and do not reflect the opinions of Hixon Zuercher Capital Management. This podcast is for informational purposes only and should not be relied upon for investment decisions. Clients of Hixon Zuercher Capital Management may maintain positions in the securities discussed in this podcast. There is no guarantee that the statements, opinions, or forecast provided herein will prove to be correct. Past performance may not be indicative of future results. Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses which would reduce returns. Securities investing involves risk, including the potential for loss of principle. There is no assurance that any investment plan or strategy will be successful.