Time Not Timing

TIME NOT TIMING 

The latter part of 2021 and early 2022 have been choppy waters for investors to sail. It will have made some readers wary of investing at all, others perhaps waiting for the ideal time to commit their savings.

Fact is you are unlikely to get it right. Timing when to be in or out of the markets has never been consistently achieved by even the greatest investors. The best known and most successful investor to date is Warren Buffet, “The Sage of Omaha” as he is also referred to. His approach is to buy and hold. He intends investing in the companies he buys “forever.”

Many investment houses have looked at this issue. Last year Schroder produced an article with some interesting figures in it.

“If at the beginning of 1986 you had invested £1,000 in the FTSE 250 and left the investment alone for the next 35 years, it might have been worth £43,595 by January 2021 (bear in mind, of course, that past performance is no guarantee of future returns).

However, the outcome would have been very different if you had tried to time your entry in and out of the market.

During the same period, if you missed out on the FTSE250 index’s 30 best days the same investment might now be worth £10,627, or £32,968 less, not adjusted for the effect of charges or inflation.

Over the last 35 years your original £1,000 investment in the FTSE 250 could have made: 

11.4% per year if you stayed invested the whole time 

9.5% per year if you missed the 10 best days 

8.1% per year if you missed the 20 best days 

7% per year if you missed the 30 best days

The 1.9% difference to annual returns between being invested the whole time and missing the 10 best days doesn’t seem much. But the compounding effect builds up over time. If you had invested in the FTSE 250 it could have cost you more than £19,000 during that time.”

I would make a couple of points here. This experience is repeated in all major markets throughout the world. Secondly, Schroder have chosen to illustrate the FTSE250 index which is referred to as “mid cap,” i.e., the next 250 companies by way of market value below the top 100 in size, which sit in the FTSE100. It exaggerates the point as research, which we follow, has shown that smaller companies outperform larger companies over time, but not every year.

A critical issue is that human nature encourages us to panic and want to sell our investments when markets have gone down and buy when the markets have gone up. Simply not the right thing to do! 

The value in being advised comes from learning to avoid emotional investing and building a diverse investment strategy that you can have confidence in and hold the investments through all market conditions.

If you would like more information, or would like to discuss your own position, then please do not hesitate to contact me or my colleagues, David Hughes and Denise Graham. 

www.rutherfordhughes.com

Peter Rutherford is a director at Rutherford Hughes Ltd. He can be contacted on 0191 229 9600 peter.rutherford@rutherfordhughes.com 

Tax advice is not regulated by the FCA, and legislation is subject to change. The value of investments can fall as well as rise and capital is at risk.

Rutherford Hughes Ltd. is authorised and regulated by the Financial Conduct Authority. 

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