Time in the Market

There was a recurring theme at the annual Burgundy Client Day on June 8th: the market is getting expensive. Burgundy’s Portfolio Managers highlighted the difficulties finding high-quality companies at attractive prices in the current market environment. Given valuation levels, our return expectations going forward are modest. This raises the question: is it a good time to invest, or should I just wait on the sidelines until the next market correction?

If you ask any Burgundy investment professional if it’s a good time to invest in the market, they will all give you the same answer: assuming you are investing for the long term (10+ years), it is always a good time to invest, but in the short term, nobody knows. We do not know if the market will go up or down in the near term and therefore cannot tell you whether it is better to invest now or wait until a market correction. What we can tell you is that, over the long term, it has been better to be invested than not. Even if you have the misfortune of investing on the worst possible day leading up to a market correction, the end result is often still attractive.

For example, consider an investment in the S&P 500 Index on February 7, 2007, which was the Index’s highest point prior to the start of the financial crisis. The investment return one year later would have been -19.8%. After two years, the portfolio would have lost a cumulative 34.7%. However, over time, the return profile becomes much more attractive. After six years, the portfolio would have recovered from any losses, and after seven years, it would be up 34.1%. Ten years later, the portfolio would have more than doubled the initial investment, earning a cumulative 117.8% return (an equivalent of 8.1% per year). This example highlights that, over the long term (10+ years), the impact of poor market timing is reduced – even if you invested at one of the worst times in the history of the stock market. It is not market timing, but time in the market that matters most.

Source: Bloomberg

Photo credit: Ryan Emberley Photography

This post is presented for illustrative and discussion purposes only. It is not intended to provide investment advice and does not consider unique objectives, constraints or financial needs. Under no circumstances does this post suggest that you should make investment decisions based on the content. Past performance is not indicative of future results. Investors are advised that their investments are not guaranteed, their values change frequently and past performance may not be repeated. The information contained in this post is the opinion of Burgundy Asset Management and/or its employees as of the date of the post and is subject to change without notice. The S&P 500 Index is designed to measure the performance of large-cap U.S. equities. The Index includes 500 leading companies and captures approximately 80% coverage of available market capitalization. Investing in foreign markets may involve certain risks relating to interest rates, currency exchange rates, and economic and political conditions. From time to time, markets may experience high volatility or irregularities, resulting in returns that differ from historical events.


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