Business Insider – Amongst all the edicts investors should heed, one stands out above all others: It’s time in the market that builds returns, not timing the market.
We’ve illustrated this rule with one of the longest-running index data sets available: the daily returns of the S&P 500 from January 2, 1928, through 2014. See this illustration on Betterment.com.
Risk in the short term
The graph below focuses on the relationship between probability of loss and holding period. After one year, the proportion of losses drops substantially. This is one key part of the time-in-the-market advice.
If investing in the S&P 500, the risk of loss is much higher for the short-term investor than the long-term investor.
Return in the Long Term
Conversely, let’s look at the median total cumulative return for every given holding period. It’s a stable and steady line, rising over time.
In combination, we can see clearly the imperative to keep the focus on time. The broader market is, and will almost always be, riskier for the short-term investor than the long-term investor. We previously wrote about the benefit of time in the market and maintaining a long term focus during downturns. We hope this analysis bolsters those points.
This blog post was produced with Joe Jansen on Business Insider.