Financial Idiot 009 - Time in the Market beats timing the Market
This Blog Post was originally distributed by the Newsletter "Financial Idiot". You can find and subscribe to it here.
DISCLAIMER: I'm an idiot and this isn't financial advice! You can lose money when investing, and you should never invest money you don't own or you can't afford to lose. I'm not responsible for your decisions!
You probably heard “Time in the Market beats timing the Market” before. It is something a bazillion financial people are praying for. But what does it mean? And why can’t you beat the market? Welcome to a new Issue of “Financial Idiot”.
The FED is upping the interest rate. The ECB (European Central Bank) is following along and will change the interest rate upward for the first time in many years. Every ticker you look at is red: crypto, shares and many other investment options.
Of course, you could go in now and buy as much as possible, but that isn’t the proper way either. You might buy something today, and tomorrow the price will jump another 50% downwards. As long as we are above zero, everything can always go down (as well as up). So that is when the above sentence comes into play.
“Time in the Market beats timing the Market”.
To a large extent, buying shares isn’t much different than playing inside a casino. However, inside a casino, it is evident that the bank always wins. Even though some degens at r/Wallstreetbets think they can beat the market, there is no way to know if something is going up or down. So when we can’t beat the market, how can we perform favourable long time from it?
Over the long run, the stock market was and is always going up. Of course, there are drawdowns somewhat regularly, but over time companies get more prominent (and grow revenue), and productivity is improving. I think some graphs show you exactly that since 1928 (or was it 1922?).
And since we now know the „secret“ of the market, we can put that to use. Every month we are going to buy X. No matter how the market stands currently, we buy X for 100€
We might have a year where the price is constantly going up, and every time we buy 100€ of X, we get less of X. Not a problem. A year later, the prices might drop slightly, and we get more X for 100€. It would be best if you uncoupled from short-term and mid-term sight. If you want your money to work for you, it must be working 10 or 15 years upward.
Of course, you could spend that 100€ a month otherwise, but it could be the 100€ that makes you a millionaire when you’re retiring. Compounding interest is a hell of an effect for that.
What is valid for the stock market also can be true for crypto. Since crypto is still somewhat new (although bitcoin has existed since 2008), it is largely unregulated. Nobody can prevent you from permanent loss because some shady guy made an exit scam (or rug pull).
But, if you research and understand how specific projects work, nothing prevents you from buying into that project or coin every month or week. It will go up if the project is created for the long run (and doesn’t just want to rob your hard-earned money). And that is without any crazy APR/APYs and strange Liquidity- Pools or Mining things. Those deserve an entire newsletter on their own.
Forget about every „Bausparer“ or savings account. Set up a stock savings plan immediately and take your financials into your own hands. Well, you kind of already did with reading this newsletter. Thanks for that!
In the next issue, I will dig into the compounding effect a little more when talking about „When will we be rich?“.