Can You Time The Market?

No…and if you could, then why are you working at your day job?

Alright, I have a friend who is interested in investing but doesn’t want to enter the market right now because “it’s too high”.

Yes, we’ve definitely had a great run the last few years, so I do expect that market might have a down year coming up sometime in the foreseeable future.

I have no idea exactly when…and neither does anyone who says they do. My friend’s logic is driving me crazy and I care so much that I looked into this.

I pulled the S&P 500 returns data from YChart since 1988 (before that year, you have to pay to get it from them). Anyway, you could have started any year with $10,000 and as long as there’s at least a 10 year investment period, you did better than 6% compounding. The toughest year was if you started on Dec 31, 1999 / Jan 1, 2000 right before the dotcom bubble. See model below. However, you would still have $28,502 by starting then versus $10,000 by not investing.

BUT an alternative is to invest $10,000 each year, no matter the market conditions. That way, you don’t have to worry about timing the market. With a consistent investment strategy of putting in roughly the same amount each year, the WORST periods are starting in 1996 and 1997 when you would be getting 8.6% over a very long period. Not too bad.

Even still, I recognize that there are definitely better times to get in and worst times to get in, I just have no idea how to predict that in the future…and if you can predict that, then the entire world would be happy to follow you in.

If you already have $x,000 amount of money, just gradually add that into the market over a period of a few years along with what you can currently contribute monthly (take home pay minus expenses).

Model 1 and Model 2 (with consistent investment each year) below. LINK HERE.

Model 2:

This is one of those things in life you can’t fix later! There’s no waking up when you are 40 years old and saying “I want to invest now”, you will NEVER get those 15 years of compounding back. EVER. NEVER.

By not investing, you are literally just lighting your future money ON FIRE dude. #endofrant