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I'm going to post two charts. The first is SPY, an S&P 500 fund, covering a 2 year period from the beginning of February, 1993 to the beginning of February 1995. Notice the ups and downs, and think about someone back then, thirty-ish years ago, being worried about investing at too high a level & wanting to wait until the S&P 500 came down some more.
Now look at the second chart. It is a chart of the same S&P 500 fund - SPY covering 30+ years from the beginning of February 1993 through the beginning of February 2024. Look at the chart. Look at the far left representing the time period covered by the first chart above.Notice how inconsequential the S&P 500 levels were back in 1994 to today's levels? Do you see it doesn't matter what month or level a person might have invested back in 1994?
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Now, imagine it is far-off 2054, some 30 years from today. Imagine a chart of the S&P 500 looking back from 2054 all the way back to 2024. Now imagine looking at the far left side of the chart.
Do you think you can learn something about today's charts, looking in the rear view mirror, that might apply to the hypothetical chart you create in 2054 looking back towards today? What do you think you might learn?
There's a fallacy in the argument that you have presented here. Essentially, you are saying that because the amount invested was so small back in 1993, then it doesn't really matter when you invested, you would still be HUGELY better off today. Well, percentagewise, that may be true, but dollarwise, it's not true.
If you invested your small sum of money when the market was relatively high (for that period), then you will have MUCH less money today than if you invested the same amount of money when the market was relatively low for that period.
For example, let's say that Investor A invests $100k when the market is at a high of 40 and that Investor B invests $100k a month later after the market declined substantially to 20. Now let's assume that the market increases 10-fold from that low over the next 30 years (excluding taxes).
This means that Investor B will have $1,000,000 at the end of that period while Investor A will have only $500,000 at the end of that period.
Moral of the story: What you end up with at the end of any given period is directly proportional to what you have invested at the start of that period regardless how many years have elapsed since the period started or how high the index has risen.
Both of these investors had $100k invested for approximately 30 years, but since Investor B invested his money during a "low", he will have twice as much as Investor A who invested one month prior to him but lost 50% of his investment during the first 30 days.
The level of the market WHEN you invest definitely makes a HUGE difference... even 30 years later.
few catch an exact low when they buy , and we are somewhere between the last low and last high 80% of our investing time .
so it’s more a case of choosing a random day vs being so unlucky as to catch the high .
the difference is much less then one would think
The result is that investing at market highs actually worked out well. That might be because the market sometimes continues hitting new highs. Plus, you’re comparing those days against any random day, and most of those random days are not market bottoms. Even if they were, you couldn’t pick those days anyway.
few catch an exact low when they buy , and we are somewhere between the last low and last high 80% of our investing time .
so it’s more a case of choosing a random day vs being so unlucky as to catch the high .
the difference is much less then one would think
The result is that investing at market highs actually worked out well. That might be because the market sometimes continues hitting new highs. Plus, you’re comparing those days against any random day, and most of those random days are not market bottoms. Even if they were, you couldn’t pick those days anyway.
The example I gave speaks for itself. I didn't claim that it was easy or even possible to pick a market low. I simply illustrated that even though the prices at any given time may be extremely low compared to the prices 30 years later, they're still VERY important and have a SIGNIFICANT impact on the amount you end up with 30 years (or ANY long time period) later.
In other words, don't think that investment prices today won't matter many years from now because they sure WILL matter. I prefer investing more when prices are relatively low for the CURRENT time period rather than thinking incorrectly that it won't matter many years from now. I'd rather wait a few months or even a few years and get a RELATIVELY low price than jumping in when prices are relatively high and then spend the next 30 years regretting my impatient decision.
... let's say that Investor A invests $100k when the market is at a high of 40 and that Investor B invests $100k a month later after the market declined substantially to 20. Now let's assume that the market increases 10-fold from that low over the next 30 years (excluding taxes).
This means that Investor B will have $1,000,000 at the end of that period while Investor A will have only $500,000 at the end of that period.
Moral of the story: What you end up with at the end of any given period is directly proportional to what you have invested at the start of that period ...
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This is of course true, but we have to consider, that almost certainly, your Investor B would not have caught that magical nadir of the market, where he could buy-in at 50% off. What the people on the other side of the argument are saying, is that B would have been waiting, waiting, waiting in disbelief and frustration, while this hypothetical market went from $40 to $80 and so on... then maybe dipping to $60... then rising to $100. Mr. B would have either never invested, or had waited to get-in, until the market was far, far above the original $40.
In contrast, we accept that bad luck would have caused Investor A to have arrived at merely $500K, whereas optimal timing would have garnered him $1M. Suck to have caught that bad luck, but still better than to have waited to get into the market until it reached $100... or even worse, traded-around and not have caught much of the compounding over the stipulated 30 years.
trying to time a buy in will result in years of under performance or worse no performance .
it’s a story that repeats over and over and a big reason many have a lot less to work with down the road then they should have
it’s as silly a ploy as trying to miss the worst days to be invested.
sounds great , but few actually can do it where it doesn’t leave them
i never waited to buy in ever in my life and never caught lows at that time with any substantial amount and still have a multiple 7 figure retirement account.
no one will, realiably not only buy in at lows enough to matter or time the lows to be out so the next best thing is don’t miss the big up days .
that’s easy to do , just be invested
Last edited by mathjak107; 02-18-2024 at 01:16 PM..
I agree that overall, dollar cost averaging usually results in worse returns. But if we are headed into a prolonged bad stock market, it will help returns. If not, yeah, you'll give up some returns, because balanced funds or target date funds typically won't be an S&P 500 index fund over long time periods. But our OP is stuck in a timer's mindset here. He sold when he shouldn't have and now he wants to buy in. The best investment is the one you actually stick with. Balanced/target date funds strike a better balance. If stocks tank, his balanced or target date fund is going to hold up better. If stocks go up, his target date fun will go up, too.
OP sounds like a nervous investor though. At 100% equities, it's going to take one downturn for them to pull money at the lows to get them even further behind.
I think they need to find any allocation they're comfortable with, set it and forget it. Easier said than done though.
OP sounds like a nervous investor though. At 100% equities, it's going to take one downturn for them to pull money at the lows to get them even further behind.
I think they need to find any allocation they're comfortable with, set it and forget it. Easier said than done though.
Time in the market may be more important. You don't get market returns if you don't have any money in something.
Most important in a company retirement account is to put in enough to get the match. This is nearly free money. In many plans stay 5 years & all the money is yours. When you consider having tax deferred makes more money. Maybe should say more money is working for you.
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