I love orchards and fruiting plants. So, I have a habit of visiting plant nurseries and gardening stores just to gather information, even when I’m not sure what I’ll buy. One day I went to a garden centre to look at apple trees.
I asked the owner, “So when is the best time of year to plant an apple tree?” He responded, “Now.”
Unfortunately, I still needed to do quite a lot of work to prepare the ground and I wasn’t quite ready to purchase an apple tree at that time. But I made a note to myself to come back at the same time next year.
About 6 months later, I found myself back at that garden centre gathering more information. Again, I was looking at apple trees and asked, “When is the best time of year to plant an apple tree?” The owner responded, “Now.”
“Wait a minute, didn’t you say that six months ago was the best time to plant an apple tree?” The owner looked at me and said, “The best time to plant an apple tree was actually 10 years ago.”
A lot of investors ask themselves, “When is the best time to invest in shares?” They may think, “prices are down, now is a good time to invest.” Or perhaps they think, “prices are down, maybe I should wait.” But by trying to figure out the right time to invest in shares most investors really just accomplish one thing.
They don’t invest in shares.
The reality is that for an investor that counts their time horizon in decades rather than months, there is never really a bad time to invest in shares.
How can that be true?
Just look at the long-term data. It’s possible to look at 30-year investment windows to see how shares have performed. We can view data for the S&P 500 Index going back to January 1926. If you invested in January 1926, you would have completed 30-years of investment by December 1955. This 30-year window would have included the Great Depression, World War II and the Korean War. Given these events, you’d think this time frame wouldn’t be a particularly good time to invest. However, over that 30-year window, the S&P 500 Index earned a compound return of 10.2% per annum.
From December 1955 until March 2020, we can examine a further 772 different rolling 30-year windows to see how all long term investors in the S&P 500 Index would have fared. What is startling in the chart below is the consistency of returns which, two-thirds of the time, range between 9% and 12%.
S&P 500 Index returns are in USD
During the best performing 30-year window, an investor earned a compound return of 14.8% per annum. But even over the lowest-performing 30-year window, an investor still earned a tidy 7.8% per annum compound return. The median return over all rolling 30-year periods was 10.9% p.a.
In New Zealand, we can look at NZX50 gross index returns going back to July 1991. If we look at data from March 2020, when the NZX50 index experienced a negative 13% return, nevertheless, an investor who began investing in the index in July 1991 and maintained their investment, experienced a compound return of 9.54% p.a. Remember, this time period included the Asian Financial Crisis, the tech wreck, the Global Financial Crisis and the start of the COVID-19 downturn. It includes all those shaky markets, yet the compound return was still 9.54% p.a.
So, I can see the wisdom of the person selling the fruit trees.
If I want a productive garden of fruit trees the most important thing is to start. The timing isn’t the critical element. The man at the store knows that when people feel it isn’t the perfect time to plant a tree they delay, they move on to other things, they forget about it, and often they’ll miss years of productive growing time, all because they were waiting for the perfect time.
For most of us investing for a lifetime, the time to start is nearly always now or even better, 10 years ago. As the phrase goes, it’s time in the market rather than timing the market that really matters, for the investor and for the amateur orchardist.
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This article was initially shared by Ben Brinkerhoff, Head of Adviser Services, at Consilium.