“Investing should be more like watching paint dry or watching grass grow.
If you want excitement, take $800 and go to Las Vegas.”
— Paul Samuelson, Nobel Prize laureate in economics

OK, my previous columns have pitched the principles of building a diversified portfolio and sticking with it.

Hardly the stuff that would cause you to tune in to CNBC or Bloomberg for hours every day; who would watch a TV show that tells you that day after day?

Better to hear “talking heads” report minute-by-minute market returns, and “experts” sharing hot tips.

You could even listen to Jim Cramer’s high-pitch voice share stock picks for his charitable foundation.

Now, I do like to hear interviews with leading economists and strategists from time to time, but the rest just seems like entertainment.

The question in my mind is whether you want a sound plan — a long-term strategy — for your investments or if you’re just looking for some cheap entertainment.

Investors often wonder when to invest. It would sure be nice to know when markets will rise — and fall — ahead of time, but as Vanguard founder Jack Bogle once said, “the idea that a bell rings to signal when investors should get into or out of the market is simply not credible. After nearly 50 years in this business, I do not know of anybody who has done it successfully and consistently.”

Arguably, investment success is largely about time, not timing. Allow me to share some evidence:

I’ll start with a study from Capital Group showing two hypothetical investments in the S&P 500 over the 20-year period ending Dec. 31, 2023. Each investor contributed $10,000 every year.

“Lucky Louie” somehow managed to pick the very best day (the market low) of each year. “Sorry Sam” wasn’t so lucky and actually picked the worst day (market high) each year.

At the end of 2023, “Lucky Louie” wound up with $836,444, an impressive 12.64% average annual return. Poor “Sorry Sam” wound up with $640,469, a still respectable 10.78% average annual return.

I’m guessing both “Lucky” and “Sam” would be happy campers sitting with a big nest-egg and sizable profits. And I cannot imagine anyone being that lucky, or unlucky.

Note that both hypothetical investors didn’t pull out of the market but stayed the course for 20 years.

History has shown the longer the time period, the greater the chances of a positive outcome.

Indeed, the S&P 500 has seen positive outcomes 94% of 10-year periods over the past 96 years thru Dec. 31, 2023 — with 82 positive periods and five negative periods.

Over five-year periods, positive outcomes were 88% of the time with 81 positive and 11 negative periods. Move to one-year periods and the chance of a positive outcome dropped to 73%. Time matters, and even then, there are no guarantees looking forward.

Let’s take a look a chart that tells the stock market story in a different way. This one, from S&P Global and using the Dow Jones Industrial Average (DJIA), shows results over more than 100 years.

Often referred to as a “mountain chart,” it demonstrates the steady — albeit rocky — climb in the index’s value between 1896 and 2018. Note the DJIA as I write this has climbed even higher at more than 42,000.

But you can also see the ascent has been anything but smooth, with sharp declines many times over the years.

Notable challenging times included World War I, the 1929 market crash followed by the Great Depression, World War II, the Korean and Vietnam conflicts, the 1987 market crash known as Black Monday, the 2001 dot-com bubble crash, the 2008 financial crisis crash and the 2020 crash following the COVID-19 outbreak, to name a few.

The Dow Jones Industrial Average rises periodically through the decades with corrections along the way, from its record low of under 35 in the late 1890s to a high of around 36,000 in 2022.
The Dow Jones Industrial Average rises periodically through the decades with corrections along the way, from its record low of under 35 in the late 1890s to a high of around 36,000 in 2022.

A deeper dive shows a history of euphoric Bull and scary Bear market periods. The chart below shows the S&P 500 (1926-2017), including good news with nine Bull Market periods, averaging 8.9 years and an average cumulative total return of 468%.

And bad news with eight Bear Market periods, lasting 1.4 years on average, with an average cumulative lost of -41%.

But notice how fast declines occur in Bear Markets: Down 83% in 2.8 years during the crash that started in 1929. Down about 22% in two six-month periods.

Don’t forget the 44% drop over just two years when the dot-com bubble burst. And, more recently, the S&P 500 fell 48% in just a little over six months from Aug. 28, 2008, to March 9, 2009, during what has been dubbed “the Great Recession.”

Note: The chart doesn’t include another short-lived Bear Market (COVID-19 scare) or the Bull Market we’ve enjoyed over the past three-plus years.

Bull-Bear markets

Be honest with yourself: How would you really handle watching a $1 million stock account fall six months in a row to $520,000 amid headline news about the huge housing crash and very scary financial crisis?

Would you actually hang in there and still be invested to enjoy the 23.45% return in the S&P 500 in 2009 and a 10-year Bull Market from 2009-2019?

It’s easy to say yes with 20/20 hindsight, but I can tell you that very few people I’ve known could or did.

Which then suggests, as I’ve noted in prior columns, the merits of including allocations to bonds and cash to stock market holdings to “smooth the ride” and help you stay invested with a less volatile portfolio.

As for letting time work for you — or trying to time markets — there are pros and cons to consider.

The NASDAQ recently posted an article from GOBankingRates with a concise summary:

Pros of Time in the Market

  • Over time, smooths out market volatility and reduces investment risk
  • Allows compound interest to significantly boost gains in later years
  • Removes emotion and bad decisions from investments
  • Easy to automate and stick to consistent, long-term investment plan

Cons

  • May have to wait years or decades for significant gains
  • Isn’t a particularly exciting way to invest
  • All but eliminates the potential for dramatic, triple-digit gains in a single year

Pros of Timing the Market

Potential for doubling or tripling your money over a short time period

Allows you to pick and choose your investment targets based on your own research

Frees up your money to do other things when it’s not invested in the market

Cons

  • High risk for large losses
  • Generally a losing game over time, even for professionals
  • Can create significant tax liabilities on any profits

Personally, I think the research argues for time, not timing, and having a long-term plan, simply accepting market ups/downs, and then just watching it grow like grass over time.

But as Clint Eastwood said in Dirty Harry, “Do you feel lucky?” Or smart?

If so, maybe trying some market timing is for you. Either way, here’s to successful investing.

Retired financial adviser Kirk Greene served hundreds of individuals, businesses and nonprofit organizations over his 40-year career. In 2020, he sold the Seattle-based registered investment advisory firm he founded to his partners and returned to Santa Barbara, where he grew up. He is an alumnus of Seattle University and earned ChFC and CLU designations from the American College of Financial Services. Kirk is past
president of the Estate Planning Council of Seattle and has been an active Rotarian for more than 25 years. The opinions expressed are his own, and you should consult your own financial, tax and legal advisers in thinking about your own planning.