Once of the first things I learned, way back when I started my career, was the value of time. There was the impact of time and the compounding of interest….. the time value money and the impact of inflation….time value in the pricing of options.

One of the more insightful ones was that “Time in the market is more important than timing the market.” It was a good sales line, actually! I would suggest that this one is worth subscribing to. The majority of the market’s gains come in a relatively small number of days per year. With that being the case, it would follow that timing the market has become a fool’s game. Being nimble enough, or lucky enough, to be in the market on only the days of year that matter, is not likely.

An area of investing that differs with the need for time in the market is in short term, or day trading, specifically with options. Many active traders, especially at the beginning, are guilty of over trading. Some feel that they have to be in the market to become wealthy from trading, over time. Well, there aren’t great opportunities to trade every day. The discipline to stay OUT of the market is likely more conducive to long term success, than anything.

Time plays a critical role in options investing. Options are a contract to buy or sell a stock, at a specified price, by/on a specified date in the future. The buyer of the contract pays a fee, or “premium”, to the seller for the right to buy or sell that stock. The amount of the fee is very closely correlated to the time that the contract is in effect. The longer that the stock can fall to or surpass the specified price, the more valuable it is. As time goes on, the contract becomes less valuable.

Time will take its toll, eventually, positively or negatively. Understanding the impact of time, on your investments, is a big driver of long-term success.