What Warren Buffett Can Teach Us About Time in the Market?

Over $100 billion later, some would venture to say that Warren Buffett is good at investing. One of the most impressive things about its success is that it didn’t require an unprecedented innovative strategy. His strategy is quite simple and he never hesitates to share it with the world: look for undervalued stocks and trust the power of time.

Time is king in investing

Warren Buffett is a huge preacher of a buy-and-hold investment strategy because he understands the power of time and compound income, calling it “an investor’s best friend.” Compound income occurs when the money you make from your investments starts making money on its own, and this is the phenomenon behind most people’s wealth. Imagine investing $1,000 and earning 10% annual interest. In the first year you will earn $100. If you reinvest the $100, you will now earn 10% on $1,100. The following year you will earn 10% on $1,210. And so on.

Someone is typing on a laptop.

Image source: Getty Images.

What people lack in money, they can make up for over time in investing thanks to compound earnings.

Let’s say you plan to retire at age 65 and start investing at age 40. If you invested $1,000 monthly and received an average of 8% annual return over 25 years, you would have accumulated over $877,000 even if you had only personally invested $300,000. If you started investing 10 years earlier at age 30, you would have over $2 million by age 65 while personally investing $420,000. Conversely, if you started 10 years later at age 50 and wanted to reach more than $877,000 by age 65, you would need to invest about $2,700 monthly.


The beauty of time in the stock market is that it often rewards consistency. For many investors, the best way to stay consistent is to use dollar cost averaging, investing on a regular basis regardless of stock prices. It can be every Monday, every 1st and 15th of the month, the last Wednesday of the month, or whatever your heart desires. Sometimes you buy when prices are high; sometimes you buy when prices are low. The most important thing is to stick to your schedule as it will keep you from timing the market.

It doesn’t have to be complicated or time consuming either. Buffett said it best: “If you enjoy working six to eight hours a week on investments, do it. If you don’t, it costs index funds on average dollars.”

Buffett has long preached that you don’t need a portfolio of hundreds of individual stocks or expensive mutual funds — you just have the S&P 500 (^GSPC 0.29%), which tracks the largest 500 public U.S. companies. With an average return of 10% over the long term, consistent investments in an S&P 500 index fund have historically proven to be one of the easiest ways to build wealth and retire.

There are no guarantees about the future performance of the S&P 500, but given the size of the companies and the sectors they cover, it is undoubtedly one of the better investments an investor can make. You get access to all 11 major sectors, blue chip stocks and dividend payouts.

The days are not always sunny

A big part of understanding the power of time in the stock market is understanding that it is not a linear process. Time is king in the long run, but the short run can be a rocky road. Since 2000, the S&P 500 has returned more than 190%, but during that time it has been anything but an easy path. The index has suffered losses in more than a quarter of those years:

  • 2000: -10.14%
  • 2001: -13.04%
  • 2002: -23.37%
  • 2008: -38.49%
  • 2015: -0.73%
  • 2018: -6.24%

When you invest in a stock, do so knowing that tough periods are not possible alone; they are very likely. Warren Buffett once said, “If you don’t think about owning a stock for 10 years, don’t even think about owning it for 10 minutes.” Unless something fundamental changes with a company or industry, don’t let short-term events distract you from your long-term goals. It often does more harm than good.

As a long-term investor, it doesn’t matter if a stock fluctuates from +20% to -20% in the short term. As long as it’s time to reap the rewards of your labor (preferably near retirement), it has and can provide the returns and value you need. Keep your eyes on the prize.

Add a Comment

Your email address will not be published.