A well-worn investment adage counsels: “It’s not timing the market that matters, but time in the market.” The suggestion is that no one can reliably know all the right moments to buy or sell and maximise their profits. Instead, we must take the plunge and let the passage of time reverse any errors we might have made in timing our investments.
As a piece of advice, this is helpful as far as it goes. Reading the Financial Conduct Authority’s recent paper on intergenerational differences in wealth raises the question of whether that is anything like far enough. The findings starkly reveal the sheer luck of coming of age at different times.
In 2008, students entered the labour market with an average outstanding student loan balance of £10,870. By 2017—following the tuition fees increase—it had tripled to £34,800. This certainly isn’t the first time in history that being born in different years has made a big difference to people’s lives—think of the cohort that just missed National Service. But now the big difference is financial, and the big question is whether it will endure.
If the important thing is “time in the market,” everything depends on how much time you’ve got. An indebted student at least has several decades to make good. What about someone who suffers a setback just before retirement? Not so much—and here too, big differences between cohorts are evident.
Data from two rounds of the Office for National Statistics’ Wealth and Assets Survey, the first carried out in 2006-8, the second in 2014-6, demonstrates this. People aged around 55 during 2006-8 have on average done well. The arrival of QE after the financial crisis ensured the property and investment wealth that they had accumulated leapt in value just before they retired. They got the benefit both of time in the market (their decades of pension saving and home ownership), followed by a perfectly timed boost from quantitative easing. What about those who followed? Those aged 55 (or younger) in 2014-6 were on average worse off than their counterparts who hit that age in 2006-8. In investment terms, this younger cohort approaching retirement had mistimed things, but they had little “time in the market” left to recover.
Without the luxury of time to bail them out, some will instead be rescued by inheritance,…