Is investing about timing the market or time in the market or…?
Ed Easterling of Crestmont Research has produced a very interesting illustration of your average annual return depending on when you bought and when you sold your investment. The chart is based on the Standard & Poor’s 500-stock index for the United States of America and goes back as far as 1920 (i.e. before the Great Depression.)
The New Yorks Times have republished the chart here.
Not surprisingly using long term average returns is very deceiving. Your wealth creation will be greatly affected by the sequence of returns during your investment time frame.
For me this illustration reinforces the importantance of annually reviewing your progress and making adjustments to your strategy and saving rate.
It also reinforces the folly of blindly ‘investing‘ in the share market with a short term view, expecting to make great returns. Short-term trading is for professionals and those playing with loose change from their deep pockets.
(Thanks to loyal reader Gihan for alerting me to this illustration.)