What does an evidence based investor buy their nephew for their first Christmas? A train set, some pyjamas, or a PS5? No silly, they buy units in an equity index tracking fund!
Imagine the fun we'll have around the table at future Christmases, discussing unit prices, performance and charts. Ok perhaps that is pushing it a little, but with twenty years plus for the power of compounding to work its magic, I am pretty sure he will thank me later.
So off I toddled to a well known provider of awesome index funds to bag myself a basket of equities. Just as I hovered over the button marked “buy”, a familiar thought entered my mind. Equity markets are at all time highs. The S&P 500 has delivered a return of 42.59% since the low on 23rd March. Wow, these sure are expensive units, why didn’t I do this six months ago?
Well hindsight is a wonderful thing as they say, and it is so tempting to drive your investment portfolio through the rear view mirror in circumstances like mine. However the past is the past, it cannot be changed unless you have a number for Doc Brown with his Delorean.
But here comes the interesting part. Investors who buy at the top of the market consistently do better...
Thanks to JP Morgan for this fantastic piece of research and evidence which I find simply mind blowing. Whilst I can’t get behind their active approach to portfolio management, I can get behind their conclusion from this article that “getting invested and staying invested is a simple step an individual can take towards growing their capital over time”.
So the lesson is, don’t hang around waiting for a dip which may never come. You are more likely to be hampering yourself in the process as your cash sits there earning 0.1%. We say it a lot but it really is true that “it is time in the market that matters, not timing the market”.
You see, being an evidence based investor doesn’t mean that you don’t have the same emotional responses to fear and greed and cognitive biases as everyone else. It just means that you are able to recognise these emotions when they occur, understand their destructive potential and put them to one side in favour of the rational scientific approach born from evidence.
Here’s hoping for a healthy and happy 2021 for all of our clients and friends.