June 1, 2020
Thirty-three years ago, my wife and I decided to move out of NYC as we began to plan for starting a family. We wanted to locate within a reasonable commuting distance, as we were both working in the city at the time.
Our real estate agent showed us a modest house in Montclair, NJ (14 miles due west of the Lincoln Tunnel), built into the side of a steep mountain. One full wall of picture windows made up for the modest house by offering breath-taking views of New York City. “We’ll take it,” we both exclaimed in unison!
The house needed some work, but our main project, given our wall of windows, was to plant some strategically placed saplings and young bushes to provide for some privacy from the street. Why do I mention this? Because landscaping provides a terrific metaphor for investing.
When you plant young trees and bushes, you must have patience, as it will take them years to grow and mature enough to provide the kind of privacy, protection and beauty you originally envisioned. Along the way, they will experience and withstand storms that may down some branches, so they will require trimming from time to time, and, of course, they will need the regular nurturing of water and sunlight.
Tending to an investment portfolio is like the caring and nurturing of trees and bushes. Over time, the market will experience good and bad years. However, history has shown us that over the long haul, stocks will average about 10% growth per year. At this rate, a three-foot baby tree will grow to be a six-foot tree in roughly seven years and so on.
Investment portfolios, like trees, need patience, tending, and time to develop and grow. Still, many people feel the pull and allure of what is almost an impossible thing to do, and that is, trying to time the market. In my opinion, this is a faulty approach.
The 10% long term average growth rate of the stock market occurs in bursts. It does not happen in tiny bits of growth every day. If you happen to miss the few growth spurts that occur during the up periods, then your long-term average will go way down. It is like saying, “Every time there is a storm, I will pull up my trees, store them in the garage and replant them when the storm is over.” Surely you recognize that this would stunt the growth of your trees, just as it would your investment portfolio.
The only way to capture every last bit of market growth over time, is to stay invested through thick and thin. The secret to success is not timing the market but TIME IN THE MARKET.
Kevin Ellman
CEO, CFP® Wealth Preservation Solutions
Personal Family Office / 360 Wealth Management