Why time in the market - not timing - matters most in investment planning

COMMENT Tom Ham CEO at Calton reassures ‘it’s time in the market, not timing the market’ that’s important

I was heartened by interactions I had with clients in the aftermath of Trump’s “Liberation Day”, the imposition of tariffs and subsequent market chaos.

Despite the downward trending graphs, red-flashing Bloomberg terminals and images of people running across the New York trading floor, our phones weren’t ringing off the hook.

I know anecdotally that other firms didn’t have the same experience. I also know that one of the reasons lights weren’t flashing at DEFCON 1here was that we have a consistent message around planning at Calton. Planning is the bedrock of everything we do. Planning is the dog that wags the investment tail. Planning is where we show our value as a profession.It’s not that I didn’t speak to my clients that week. We were there for people who wanted reassurance.

A long-time client called and began the conversation with, “I already know what you’re going to tell me, but I want you to tell me anyway.” This epitomises our service – long-term strategy, clarity of explanation, and we’re there for you when you need us.So, what was the nugget of reassurance that my client needed to hear again? The classic investment axiom: “It’s time in the market, not timing the market.” Our long-term clients have become accustomed to hearing this. Most likely it came up in our first meeting and has become a bit of a jingle, but it’s especially relevant when the markets take a turn.What “time in the market” means is that you should aim to hold your investments for as long as possible –invest early, invest often –so that you maximise and compound your return.While doing this, you are likely to encounter inevitable market dips. By staying invested throughout, you will benefit from the market’s recovery by being there when the upswing starts.

Attempting to “time the market”, by selling at the start of a dip or buying at the beginning of a recovery, could either crystallise your loss or lead to you missing the start of the recovery.

It’s a memorable phrase designed to help people avoid the knee-jerk reaction of selling everything off and converting to cash during a market fall. Data supports its wisdom. The markets do recover over time – that line keeps going up and to the right even if dips occur every five years or so. Equities have annualised a 10 per cent return over the past hundred years, despite wars, cycles of boom and bust, and Covid-19.Likewise, the biggest upswings happen after the greatest falls, so if you look at how a portfolio fares with and without the best ten and 20 days of the past two decades you see that £100 invested in 2005 is now worth over £400, if you stay invested, but under £250 if you miss the best ten and under £200 if you miss the best 20 days.We should bring greater nuance to this. For some clients, timing may be important and so we advise everyone to plan around this kind of market event. Anyone approaching retirement or already taking income will be justifiably apprehensive and will want clarity about how events in the US and global market will affect them.It’s too early to answer that definitively but, in the meantime, we rely on planning. We advise clients to keep an emergency cash reserve to cover a minimum of six months’ outgoings –or more, depending on their risk appetite – so they don’t have to withdraw money in the most unfavourable circumstances.

Another reassurance for clients is that our investment team’s monthly bulletin in late 2024 warned of the gremlins that lay within US equities –over valuation and over concentration. Our portfolios managers have been on the front foot of this risk for some time, coming into 2025 with reduced allocations to US assets, in favour of the rest of the world. A bias that has considerably limited drawdowns this year in client portfolios.

Our approach is one of proactivity rather than reactivity to give investors the best possible chance of achieving that 10 per cent annualised return from equities over the next decade.

There are knowns and unknowns in this new Trump-shadowed world. This 90-day pause is not the end of the story. Further volatility is likely and there will be real effects for UK consumers, savers and investors if we enter a global recession. We will be here for our clients, to tell them something old or something new. Either way, planning will be front and centre.

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