“I’m holding my investments in cash until the market bottoms out”…. The modern-day equivalent of searching for El Dorado.
Intelligent individuals, often with a strong understanding of business, economics and financials, like the famous conquistadors are often unable to find reward for their never-ending search for the bottom of the market.
Like the great conquistadors passing through beautiful South America unable to see the vast value of the great South American cultures and civilisations, these intelligent individuals searching for the bottom of the market often overlook the exceeding wealth surrounding their existing circumstances if only they opened their eyes to see.
Consistently timing the market is extremely difficult, most (including a handful of Nobel Prize Laureates) would argue it is in fact impossible.
According to research by Ned Davis, Morningstar, and Hartford Funds “78% of the stock market’s best days occur during a bear market or during the first two months of a bull market.”
In fact, if you only missed 10 of the best market days between 1992 and 2021 your total portfolio would be 54% worse off compared with if you had been invested throughout the period. Miss 30 of these best days and this increases to 83% (see the graphic below).
It is for this reason that we warn against the search for El Dorado in trying to find the bottom of the market. Get the right timing and “untold riches” might be discovered, get it wrong and you could do irreparable damage to your ability to achieve your investment goals and objectives.
Research by Dimensional Fund Advisers shows that over the long term, “time in the market” as opposed to “timing the market” drives the best long-term returns.
Like many things, a market in decline can often be a stressful and scary time. However, having a clear investment strategy that is consistent with your goals, and having the support of an adviser to maintain the discipline required to weather a declining market can make a tangible and substantial difference to your long-term outcomes.
So don’t search for the bottom of the market like it’s the City of Gold…. search for a great financial adviser who together with you can establish a plan to create a path to achieving the goals and objectives that are important to you.
