3 Timeless Investing Principles
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Scroll down for a transcript and chapters start times. This discussion is with Vector advisor Charlie Gruys and Ezra Firkins.
Summary
In our latest podcast, we explore three key investing principles that we believe every investor should keep in mind.
• First, time in the market is generally more effective than trying to time the market. Trying to predict the highs and lows is challenging and can reduce your potential gains if you miss just a few key trading days.
• Second, while the range of potential market outcomes in any given year is wide, it historically narrows given time. This reinforces the importance of a long-term strategy.
• Finally, risk isn't just about market volatility—it includes concentration in a single stock or asset class, tax implications, and choosing the right withdrawal strategy for your accounts.
Join Charlie Gruys, one of our experienced advisors at Vector Wealth, as he discusses these principles.
Episode Chapters
Introductions with Charlie Gruys
0:00
Charlie and Ezra set the stage for a discussion on investing fundamentals.
Time in the Market vs. Timing the Market
0:49
Learn why staying invested for the long term can outperform the difficult task of trying to predict market highs and lows.
Volatility of Returns Over Time
3:31
Discover how the range of market outcomes narrows over time, highlighting the importance of long-term investment strategies.
Risk Beyond Performance: Concentration and Withdrawal Strategy
07:12
Understand how managing risk involves more than market volatility, including portfolio concentration, tax planning, and strategic withdrawals.
Transcript
(adapted for readability)
We have a few slides to discuss today, focusing on our theme, "Three Timeless Principles of Investing." Today, we’re joined by Charlie, an advisor at Vector Wealth with about sixteen years in the industry, beginning just before the Great Financial Crisis in 2008. But today isn’t about history—it’s about those three core principles.
The first principle is: don’t try to time the markets. It can be tempting, especially when it feels like the market is either peaking or dipping, to act on that sense of opportunity. However, timing the market is incredibly challenging. You not only have to choose the right moment to sell but also to buy, and then there’s the matter of when to re-enter if you’ve sold. There are multiple decision points that must all align to get it right. For instance, a chart we’re discussing shows that if you’re fully invested, the average annual return is 9.7%. But missing just the ten best days in the market cuts that return nearly in half. Considering that there are only 252 trading days in a year, missing those ten can have a dramatic effect. This reinforces the phrase: "Time in the market beats timing the market."
The second principle centers on the concept of time diversification and the volatility of returns. We’re looking at a chart showing equities and bonds over various time frames—one, five, ten, and twenty years—with a range of best and worst returns. For a one-year period, stocks could return as high as 52% or as low as -37%. Bonds, being more conservative, show less extreme swings, with a best return of 33% and a worst return of -13%. Moving to a five-year or ten-year period, the range of outcomes narrows, showing convergence over time. This pattern underscores that while returns in the short term can be volatile, staying invested over time smooths those highs and lows. The chart illustrates how longer-term investments provide more predictable returns, helping advisors guide clients in building balanced portfolios.
Finally, risk comes in various forms, not just market risk. Many think of risk as the possibility of losing a large portion of their portfolio—such as a $1 million portfolio dropping $370,000 in a tough year. However, there's also the risk associated with concentrated investments. Some clients come to us with concentrated positions due to inheritance or employment, sometimes with 10% or more of their assets in a single stock. This kind of concentration presents its own risks. Moreover, knowing which accounts to draw from, such as brokerage accounts or IRAs, and timing those withdrawals tax-efficiently is crucial.
In summary, we have three timeless principles:
· Time in the market is more effective than attempting to time the market.
· The range of potential market outcomes in any given year is wide but narrows over time.
· Risk goes beyond market fluctuations; it includes concentration, taxes, and withdrawal strategy.
Thank you, Charlie, for outlining these principles and helping investors understand the path to potential success in the markets. For anyone who’d like to speak with Charlie, reach out to Vector Wealth via phone or visit our website.
Disclaimer: The information provided is for educational purposes and does not constitute an offer to buy or sell any security or investment strategy. Consult a qualified financial advisor or tax professional before implementing any investment strategy.
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These discussions aim to spark dialogue about enhancing retirement readiness and making more informed financial decisions. At Vector, we delve into the nuances of scenario planning, offer insights and guidance tailored to each client's unique circumstances. If you or someone you know is pondering their financial future or seeking clarity on their retirement plan, we're here to help.
Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies.
Information expressed does not take into account your specific situation or objectives, and is not intended as recommendations appropriate for any individual. Listeners are encouraged to seek advice from a qualified tax, legal, or investment adviser to determine whether any information presented may be suitable for their specific situation.
Past performance is not indicative of future performance. Investments involve risk and unless otherwise stated, are not guaranteed.
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