LONG-TERM INVESTING: TIME IN THE MARKET CAN TOP MARKET TIMING

• Staying invested over the long term allows investors to benefit from the power of compounding and potentially overcome short-term setbacks.
• Market volatility can be intimidating but waiting for the “right time” to invest may mean missing key market moments.
• iShares Core Allocation ETFs make it possible to invest in a diversified portfolio with as little as one share.

Long term investments are essential for most individuals to meet their financial goals — assuming the investments are carefully selected as part of a diversified portfolio. But the thought of losing money can be scary and it's natural to worry whether now is a good time to invest.

What if we flipped that thinking on its head? Looking at the stock market’s (very) long-term performance, there’s a case to be made that it’s more rational to be worried about being out of the market vs. getting in at the “wrong” time.

Going back to the 1920s, the U.S. stock market has endured painful selloffs and prolonged downturns, including the Great Depression, 1987 crash, and the 2008 Global Financial Crisis. But over the past century, the market has steadily climbed the proverbial ‘wall of worry’ associated with those events, multiple recessions, and myriad other periods of market unrest.

In addition to the market’s long-term track record of success, consider the following:

• From 1936 through 2024, the U.S. stock market never had negative returns on a rolling 20-year basis. And since 1972, the S&P 500 hasn’t had negative returns on any rolling timeframe longer than 12 years.¹
• In the past 20 years, the S&P 500 had an average intra-year decline of nearly 15%. Yet the index had positive annual returns in over 75% of those years.²

Over those same 20 years, the average annual return of the S&P 500 was about 10%.³

Beyond healing all wounds, time is paramount to long-term investing success. Time provides investors an opportunity to grow portfolios alongside the economy’s long-term trend; a bet on human ingenuity and market-based capitalism, if you will. Time gives you the ability to overcome short-term setbacks and benefit from the power of compounding, or the return earned on past returns.

Former Berkshire Hathaway vice chairman Charlie Munger compared compound interest to a small snowball being rolled down a very large hill, declaring: “The first rule of compounding: Never interrupt it unnecessarily.”⁴

Once you grok that time in the market is an important investing concept, then you can start to think about what kind of investor you are, what your goals are at this point in your journey (hint: they’ll likely change over time), and what mix of investments are most likely to help you reach your goals. (Check out our introduction to asset allocation.)

Investing earlier and staying invested over the long-term can put the power of time on your side. Furthermore, trying to time the market to avoid selloffs is extremely difficult and puts you at risk of missing out on potential gains.

And that risk is not theoretical, nor is it insignificant. The chart below shows a hypothetical investment of $10,000 in stocks over a 20-year period. An investor who stayed invested over that time period would have made 58% more than one who missed just the five-best performing days. As shown in this illustration, if you were unfortunate enough to miss the 25 best days, that portfolio loss would have increased to three-quarters of potential value.

Considering the market’s best days tend to occur during periods of heightened volatility, it’s another reason why “get invested and stay invested” is a good strategy to consider for a majority of investors.⁵

But let’s take it a step further: What if you had the worst-possible timing?

Even if a hypothetical investor had the great misfortune of starting to invest in U.S. stocks at their peak — right before past market crises — they would likely have realized growth if they stayed invested for the long-term.

What if you invested right before a market crash?

Of course, none of this diminishes nor negates the fact that it can be scary when markets go down, particularly when they go down quickly in a seemingly indiscriminate fashion. Market volatility is the degree of variation in the price of a financial security, as measured against its long-term pattern. In mathematics, volatility is defined as the standard deviation of a sequence of random variables, each of which is the return of the fund over some corresponding sequence of (equally sized) times.⁶

Volatility measures price changes in both directions but, in non-academic circles it has become a euphemism for falling prices. Since no one likes to see their hard-earned savings diminish, investors often ask “How should I handle market volatility?" And “Should I sell stocks when markets are volatile?"

That’s why it can be so hard to accept that often the best course during market selloffs is: Do nothing.

Fear often leads investors to buy high and sell low as they invest more in a rising market and pull money out in a falling market. (Learn more about strategies to navigate turbulent markets.)

Having said that, sometimes it may make sense to adjust a portfolio if conditions seem to suggest that you are not going to meet your goals because markets conditions have changed. For example, you may need extra protection against inflation or you may need added diversification by increasing exposures to other asset classes. Or for your taxable accounts, you may want to keep your current strategy but sell out of funds or stocks that have declined in value to offset other taxes, a strategy known as “tax loss harvesting”. (Of course, consult a tax professional first.)  Changes to a portfolio like these may actually help strengthen it for the long term.

In short, making tweaks around the edges of a portfolio may make sense. But trying to time the market to avoid selloffs is extremely difficult because of the risk of missing the rebound. Instead, focus on your longer-term investing goals.

Investing earlier and staying invested over the long-term can put the power of time on your side. Certain ETFs make it fast and easy to invest across a diversified portfolio of stocks and bonds, which may make it easier to make investment decisions. For example, the iShares Core 60/40 Balanced Allocation ETF (AOR) holds a portfolio of ETFs representing roughly 6,000 stocks and 14,000 bonds. These “all in one” ETFs also exist for investors with conservative, moderate, or aggressive risk targets, which differ by how much of the fund is invested in stocks vs. bonds. These low-cost vehicles may be easy ways for investors to maximize their “time in the market,” which (hopefully) you now understand plays a vital role toward long-term success.