Those who are passively invested in the markets, usually experience a pretty bumpy ride. To visually showcase this, the charts below provide various ten-year results for the S&P 500. Each period starts at the beginning of a calendar year and extends out for a decade. The first ten-year period stretches from January 1998 to December 2007; the last one runs from January 2009 to December 2018.
Source: Zephyr StyleADVISOR. All data based on historical performance of the S&P Total Return Index.
As this chart shows, there is a wide degree of variation in ten-year returns. The best decade is the one ending December 2018. The annualized return for that period is 13.12%. This period includes the incredible bull market initiated in early March 2009 and has no bear market.
Conversely, the worst decade runs from January 1999 to December 2008 and includes both the entire dot-com bear market and the credit crisis bear market. The unlucky investor in that date range would have lost an average of 1.38% per year and ended up with a portfolio worth almost 13% less than when he or she started—truly a “lost decade.” A hypothetical $100,000 investment on January 1st over these periods ranged from a high of $343,033 to a low of $87,006.
Certainly, one can see the uncertainty of outcomes when investing at various times in the market and conclude that timing is indeed everything.
So how does one solve this problem of outcome uncertainty with respect to timing while seeking to achieve long-term investment goals?
At Swan, we would argue that consistency is the best solution to the timing issue. If one can decrease volatility by providing consistent returns, the importance of timing fades away.