If you remember Aesop’s fable, The Tortoise and the Hare, you know that the tortoise and the hare were in a race. The hare ran very fast, but then took a nap in the middle of the race and, by the time he woke up, couldn’t catch up to the tortoise who slowly but steadily beat him to the finish line.

Retirement investors who try to time the market are like the hare. They invest their money in one portfolio, then switch to another portfolio when market conditions change, and then switch to another when conditions change again. Like the hare, they can end up losing, missing out on significant increases in the value of a portfolio. Meanwhile, retirement investors who have a tortoise-like philosophy and stay with their investment plan — and ignore temporary fluctuations in portfolio prices — frequently are winners and achieve their financial goals.

Why the Hare Loses

Timing the market is the investment strategy that tries to predict when an investment’s price will rise or fall and then attempts to buy low and sell high. While this principle makes sense, the practice of market timing is extremely difficult. Market peaks and valleys are not clearly visible until after they have passed. Few investors can repeatedly time their investment moves to match market high points or low points. Bad timing occurs when an investor invests in an investment at a high price, only to see the price drop later, or switches out of an investment at a low price, which later increases.

Why the Tortoise Wins

Time is on the side of retirement investors who think like a tortoise. Generally, an investment’s good years will overcome its bad years. Take stocks, for example. The average annual return of large company stocks (represented by the S&P 500) over 25 years (1988 through 2012) was 9.61%, even though for five of those years (1990, 2000, 2001, 2002, and 2008), large company stocks posted negative returns. An investor who remained invested in a stock portfolio for those 25 years could have done very well. But an investor who tried to time the market during those years might have missed out on the periods of rising values that produced the 9.61% average gain.*

The tortoise approach applies to bond portfolio investors, too. Using the same 25-year period, bonds (represented by the Barclays Capital U.S. Aggregate Bond Index) produced a 7.24% average annual total return. Once again, this positive return was achieved despite a couple of years of negative returns. Investors could have benefited from holding steady with their bond portfolio during those down years, while investors who took a break may not have been able to achieve such a positive return.* Remember that, in any one year, market results can be volatile. But sticking to your long-term investment plan may reduce your chances of an overall loss, whether you are invested in stock or bond portfolios.

The story of the tortoise and the hare may have been written a long time ago to teach the virtues of consistency and perseverance, but the lesson also applies today to retirement investors. History has shown that, for most investors, staying with an investment portfolio is a more effective strategy than trying to time the markets. So, next time you are tempted to act like a hare and hop in and out of a portfolio, remember that the slow and steady tortoise won the race.

* Past performance is no guarantee of future results.

Investments are not bank deposits, are not obligations of, or guaranteed by Genesee Valley Trust and are not FDIC insured. The views and strategies described herein are for illustrative purposes only and may not be suitable for all investors. Investments contain risk, including market capitalization risk, political and country risk and/or credit and interest rate risk. Investments may lose value. Past performance is not a reliable indicator or guarantee of future results.