If I am investing for 20 years and I don’t need the money, then it doesn’t matter what the markets do today or tomorrow because I can’t control that, or second guess what might happen.

When markets are rising, there is a danger that we think (or secretly hope) that they will keep going up. The reality is that at some point stock markets will go down; we just don’t know when, by how much and how quickly they will recover (because what goes down will usually come back up).

Sadly, as humans we are prone to big emotions, with worry being perhaps the most distracting! We now live in a world where we have information overload, which can lead us to consider all sorts of scenarios.

Take an example; one picture being painted in the press is that populist opinion in Holland, France and Germany will lead to referendums on the EU which ultimately will lead to its collapse. We can read into this what we want; if we believe it to be true, will it then lead to a global recession and collapse in stock prices? Then what do we do next (do we stay invested or move to cash)?

If the worry is not the EU, there is China, the US, ISIS, Russia, or North Korea to consider. In fact, there is so much to worry about, that perhaps it is better to just hide all the cash under the bed (unless of course the house burns down, and then what do we do?).

These are all natural worries (and part of being human), but the challenge is how do we ensure that these worries don’t impair our judgement, and distract us from focusing on those things that are important. In this blog, I want to consider “time in the market” and “timing the market”.

Financial Plans

When investing, everything we do should be driven by our financial plans; there is little point in saving, or “hoarding” money if we have no idea what it is there for. Plans can be simple or complex; short term it might be to save for a deposit on a house, long term it might be to save for retirement. These are very different goals, saving for a deposit is likely to mean that you cannot suffer any capital loss in the short term, and therefore saving in cash would be the sensible investment option. Whereas saving for retirement would allow more risk, due to the length of time available for investment.

Taking the latter, my personal view with retirement is that I am unlikely to “retire” for perhaps 20 years, and even then, it might be about working part time rather stopping. Beyond that I may live a further 20 years; that’s a 40-year time horizon. The only investment for me (in my view) is the stock market. Taking it a step further if I can achieve an average of 5% p.a. after charges over 20 years that is 100% return; in retirement if I can repeat that it should be sufficient to provide an income with some growth.

That is my long-term goal/plan and as part of that I accept that the 5% return will not be steady; some years I might get a negative return, others a positive return but evened out it will match my target return.

Ultimately, my financial plan keeps me focused. If I try to play the market by timing when to invest and when to be out of the market (timing the market) I will likely fail.

Things happen

One of the most powerful graphs I have seen is from Scottish Widows; it shows £100 invested in the Barclays Equity Index (dividends re-invested) in 1950 would be worth £182,494 in 2016.

But if we think it is a nice smooth upward line we should think again. Just take events from 1987 onwards, we have seen for example; Black Monday, Barings Collapse, Enron bankruptcy scandal, WorldCom bankruptcy, September 11th, Global Financial Crisis, Chinese Stock Market Crash to name just a few events. In all these case the markets have fallen sharply; and yet even with all of this, remaining in the market has achieved significant returns.

Fidelity point out that markets move in cycles and in the short term this can be volatile; over 12 months there is a 25% chance of “losing” money, over 5 years this falls to 16% and over 12 years it drops to zero.

So, if your investment time horizon is five years plus then being in the market is arguably where you should be. However, some investors will claim that timing the market is easier to do. By perfectly timing the market they can avoid all the crises we have seen, re-enter the market at the lowest point and then wait to sell at the top of the cycle. But does this work?

Timing the market

Markets will go up, they will go down. That is unfortunately a given.

There is growing evidence that investors are trying to time the market. For example, many are not willing to hold onto underperforming funds for more than 12 months; this often means selling at the worst time and buying into another investment at the peak of its performance. This then creates a vicious spiral where investors are constantly chasing performance.

I bought Boohoo.com at 70p; the share price collapsed and dropped to 25p. At the time of purchase, I did the research and believed it was a good investment. The share price collapsed, and emotion took over, my rational thinking went out of the window and I sold my shares. Today the price is £1.80. I couldn’t tell you where I invested the money because I am certain the return from that didn’t make up the loss. I now don’t invest in any shares because the risk and emotional pull is much harder than that of an investment fund, but it does demonstrate we can all be sucked into timing the market.

Warren Buffett was once asked how long people should hold onto an investment to which he replied “forever”. There is some truth to this. In today’s environment, we can track virtually by the second how our investments are doing. To some extent this is unhelpful because it means investors trade too often on what should be a long-term investment (and I have been guilty of this).

Research by Fidelity shows that over a ten-year period to 2012 staying in the market would have returned 68.96%. Being out of the market, and missing the best ten days would have given a negative return of -4.64% and missing 30 days a negative return of -49.08%.

It is worth adding that sometimes selling investments is the right thing; but this comes down to research and understanding whether the initial reason for investing has changed.

Avoiding bias

We can see the performance of our investments daily, if it goes up we see a gain, if it goes down we see a loss. A loss naturally feels worse than a gain.

There are two points to consider:

  1. If I invest £100,000, leave the money for ten years and it is worth £200,000 at the end of that period then I would probably be happy. At any point during that time it could have, for example, fallen to £50,000 or increased to £250,000. The point with any investment is the journey; where you have come from to where you are now
  2. A loss is only a loss if you sell the asset. If my £100,000 was worth £50,000 2 years into the investment, I have a ‘paper’ loss. If I sell it then yes, I will have lost money but if I hold onto the investment then it is not a physical loss

Going a step further, we would always argue that focusing on the financial plan will help to avoid bias. If I am investing for 20 years and I don’t need the money, then it doesn’t matter what the markets do today or tomorrow because I can’t control that, or second guess what might happen. This applies whether you are in retirement or planning for retirement.

I always think it is a little bit like running half marathons; when I am at the start line and facing 13 miles, it is a bit scary because I can’t see the finish line. During the race, there are times when I am not sure if I will get to the finish, but I do eventually and it doesn’t seem that bad! Investing is similar, good and bad things happen but it is always about focusing on the goals because otherwise there is little point.

There is also a counter-intuitive approach to investing which is realigning your investments at a set time (perhaps once a year). If for example, you had 10% in the UK and that grows to 12%, you are just moving everything back to where it was before. You are taking profits and reinvesting into funds not doing so well and this has proved time after time to work because emotions have been taken out of the process.


I must admit I am happier when I see investments go up, but equally I get anxious because I know at some point it will correct. The ‘not knowing’ is perhaps the hardest part of my job. What I do know is that timing the market doesn’t work. If it did we would all do it, and we would never have to work!

It is very easy to be distracted on our journey; in 1999 I felt I had missed out on the tech bubble and moved money into tech stocks because I wanted to join the party. The problem was that the party was over by the time I decided to arrive. Throughout history we can pick spots like this and have no doubt been guilty of being sucked in (for example, tulip mania in 1637 through to the US real estate bubble which peaked in 2006).

In conclusion, when I am anxious or worried my focus is always on the goals and the process, because I know that whatever happens in the short term normally smooths out over the long term.

Note: This is written in a personal capacity and reflects the view of the author. The post has been checked and approved to ensure that it is both accurate and not misleading. However, this is a blog and the reader should accept that by its very nature many of the points are subjective and opinions of the author. Individuals wishing to buy any product or service as a result of this blog must seek advice or carry out their own research before making any decision, the author will not be held liable for decisions made as a result of this blog (particularly where no advice has been sought). Investors should also note that past performance is not a guide to future performance and investments can fall as well as rise.