When it Comes to Outcomes, Investment Timing is Everything. Or is it?

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It’s often said that “tim­ing is every­thing.” Given the volatile state of the equi­ty mar­kets over the last few decades, that old adage cer­tain­ly appears to hold true in the world of invest­ing. Invest­ment tim­ing, or when one enters and exits the mar­ket, can have a large impact upon the final wealth of a port­fo­lio.

Below are var­i­ous ten-year results for the S&P 500. Each peri­od starts at the begin­ning of a cal­en­dar year and extends out for a decade. The first stretch­es from Jan­u­ary 1998 to Decem­ber 2007; the last one runs from Jan­u­ary 2005 to Decem­ber 2014.

S&P 500 various 10-year returns - Swan Blog

Source: Zephyr StyleAD­VI­SOR

As you can plain­ly see, there is a wide degree of vari­a­tion in ten year returns. The best decade is the most recent one, end­ing Decem­ber 2014. The annu­al­ized return for that peri­od is 7.67% and includes all of the incred­i­ble bull mar­ket ini­ti­at­ed in ear­ly March 2009. Con­verse­ly, the worst decade runs from Jan­u­ary 1999 to Decem­ber 2008 and includes both the entire dot-com bear mar­ket and the cred­it cri­sis bear mar­ket. The unlucky investor in that date range would have lost an aver­age of 1.38% per year and end­ed up with a port­fo­lio worth almost 13% less than when he start­ed — tru­ly a “lost decade.” A hypo­thet­i­cal $100,000 invest­ment on Jan­u­ary 1st over the­se peri­ods ranged from a high of $209,470 to a low of $87,006. Cer­tain­ly, one might con­clude that invest­ment tim­ing is indeed every­thing.

So how does one solve this prob­lem? At Swan, we would argue that the best solu­tion to the tim­ing issue is con­sis­ten­cy. If one can decrease volatil­i­ty by pro­vid­ing con­sis­tent returns, the impor­tance of invest­ment tim­ing fades away. Below we see the same eight decades for the Swan DRS:

Swan DRS various 10-year returns - Swan Blog

Source: Zephyr StyleAD­VI­SOR

The DRS returns dis­play a remark­able degree of long-term con­sis­ten­cy. The worst of the­se eight decades was 7.45%, the best was 9.15%. The range of out­comes on an ini­tial $100,000 invest­ment is a low of $205,110 to a high of $240,110. It is also impor­tant to note that the above decades include not only the major bear mar­kets of 2000-02 and 2007-08, but also many numer­ous short-term cor­rec­tions like the Rus­sian default/LTCM cri­sis of 1998, the “flash crash” in May 2010, and the U.S. debt down­grade in August 2011. The DRS has suc­cess­ful­ly weath­ered such events and has his­tor­i­cal­ly pro­vid­ed very smooth returns.

The table below sum­ma­rizes and com­pares the results of the Swan Defined Risk Strat­e­gy and the S&P 500.

Table Various 10-Year Returns- DRS vs SP 500 - Swan Blog

Source: Zephyr StyleAD­VI­SOR

How has Swan been able to achieve the­se results? Our mot­to is: “Always invest­ed, always hedged.” At Swan we do not attempt to time the mar­ket by try­ing to call mar­ket tops and bot­toms. The major­i­ty of the DRS assets are always invest­ed in the mar­kets. How­ev­er, we also always hedge our port­fo­lio by plac­ing down­side pro­tec­tion on our equi­ty hold­ings. When mar­kets sell off mas­sive­ly like they did in 2000-02 or 2007-08, the hedge pro­tects on the down­side and pro­vides a smoother return.

That isn’t to say that in the short term, the DRS won’t have its loss­es. Every invest­ment strat­e­gy has its risks. An aggres­sive strat­e­gy will have the risk of loss­es. A con­ser­v­a­tive strat­e­gy bears the oppor­tu­ni­ty costs of for­go­ing upside gains. At Swan Glob­al Invest­ments, we believe we have struck the right bal­ance between upside par­tic­i­pa­tion and down­side pro­tec­tion for those investors with a long-term hori­zon and a ratio­nal, patient view of the mar­kets.

To learn more about Swan’s DRS invest­ment approach and how this approach has fared in the past, please con­tact Swan at 970–382-8901.


Marc Odo, Marc Odo, CFA®, CAIA®, CIPM®, CFP®, Director of Investment Solutions - Swan Global InvestmentsAbout the author: Marc Odo, CFA®, CAIA®, CIPM®, CFP®, Direc­tor of Invest­ment Solu­tions, is respon­si­ble for help­ing clients and prospects gain a detailed under­stand­ing of Swan’s Defined Risk Strat­e­gy, includ­ing how it fits into an over­all invest­ment strat­e­gy. For­mer­ly Marc was the Direc­tor of Research for 11 years at Zephyr Asso­ciates.




Impor­tant Dis­clo­sures:

S&P 500 — The S&P 500 Index is a mar­ket cap weight­ed index of 500 wide­ly held stocks often used as a proxy for the over­all U.S. equi­ty mar­ket.

Swan Glob­al Invest­ments, LLC is a SEC reg­is­tered Invest­ment Advi­sor that spe­cial­izes in man­ag­ing mon­ey using the pro­pri­etary Defined Risk Strat­e­gy (“DRS”). SEC reg­is­tra­tion does not denote any spe­cial train­ing or qual­i­fi­ca­tion con­ferred by the SEC. Swan offers and man­ages the DRS for investors includ­ing indi­vid­u­als, insti­tu­tions and oth­er invest­ment advi­sor firms. Any his­tor­i­cal num­bers, awards and recog­ni­tions pre­sent­ed are based on the per­for­mance of a (GIPS®) com­pos­ite, Swan’s DRS Select Com­pos­ite, which includes non-qual­i­fied dis­cre­tionary accounts invest­ed in since incep­tion, July 1997, and are net of fees and expens­es. Swan claims com­pli­ance with the Glob­al Invest­ment Per­for­mance Stan­dards (GIPS®). All data used here­in; includ­ing the sta­tis­ti­cal infor­ma­tion, ver­i­fi­ca­tion and per­for­mance reports are avail­able upon request. The S&P 500 Index is a mar­ket cap weight­ed index of 500 wide­ly held stocks often used as a proxy for the over­all U.S. equi­ty mar­ket. Index­es are unman­aged and have no fees or expens­es. An invest­ment can­not be made direct­ly in an index. Swan’s invest­ments may con­sist of secu­ri­ties which vary sig­nif­i­cant­ly from those in the bench­mark index­es list­ed above and per­for­mance cal­cu­la­tion meth­ods may not be entire­ly com­pa­ra­ble. Accord­ing­ly, com­par­ing results shown to those of such index­es may be of lim­it­ed use. The adviser’s depen­dence on its DRS process and judg­ments about the attrac­tive­ness, val­ue and poten­tial appre­ci­a­tion of par­tic­u­lar ETFs and options in which the advis­er invests or writes may prove to be incor­rect and may not pro­duce the desired results. There is no guar­an­tee any invest­ment or the DRS will meet its objec­tives. All invest­ments involve the risk of poten­tial invest­ment loss­es as well as the poten­tial for invest­ment gains. Pri­or per­for­mance is not a guar­an­tee of future results and there can be no assur­ance, and investors should not assume, that future per­for­mance will be com­pa­ra­ble to past per­for­mance. All invest­ment strate­gies have the poten­tial for prof­it or loss. Fur­ther infor­ma­tion is avail­able upon request by con­tact­ing the com­pa­ny direct­ly at 970–382-8901 or  054-SGI-102215