Time, Not Timing, Is What Matters
Investors learning how to invest in the stock market might also ask when to invest. Knowing when to invest, however, isn’t as important as how long you stay invested.
Trying to navigate the peaks and valleys of market returns, investors seem to naturally want to jump in at the lows and cash out at the highs. But no one can predict when those will occur. Of course we’d all like to avoid declines. The anxiety that keeps investors on the sidelines may save them that pain, but it may ensure they’ll miss the gain. Historically, each downturn has been followed by an eventual upswing, although there is no guarantee that will always happen. Trying to avoid risk could itself be risky, since it’s impossible to know when to get back in.
The chart below shows two hypothetical investments in the S&P 500 over the 20-year period ending December 31, 2018. Each investor contributed $10,000 every year. One investor somehow managed to pick the very best day (the market low) of each year to invest. The average annual return on that investment would have been 9.16%. The other investor was not so lucky and actually picked the worst day (market high) each year. Even with the worst investment timing, the average annual return would have been 6.91%. At the end of 20 years, the cumulative investment of $200,000 had a value of $415,560.
So even selecting the worst day each year to invest, someone who continued investing in the market over the past 20 years would have come out ahead. It’s important to note that regular investing neither ensures a profit or protects against a loss. However, the tables below illustrate how regular investing can be beneficial.
Timing isn’t critical to long-term success:
Best-Day Investments
(Market Lows)
Date of
Market Low
Cumulative
Investments
Total
Value
1/14/1999
$10,000
$12,269
12/20/2000
20,000
$21,594
9/21/2001
30,000
$30,961
10/9/2002
40,000
$35,492
3/11/2003
50,000
$59,759
8/12/2004
60,000
$77,739
4/20/2005
70,000
$92,677
6/13/2006
80,000
$119,025
3/5/2007
90,000
$136,415
11/20/2008
100,000
$97,992
3/9/2009
110,000
$140,705
7/2/2010
120,000
$174,324
10/3/2011
130,000
$189,514
1/3/2012
140,000
$231,266
1/8/2013
150,000
$319,119
2/3/2014
160,000
$374,853
8/25/2015
170,000
$391,069
2/11/2016
180,000
$450,318
1/3/2017
190,000
$560,710
12/24/2018
200,000
$546,793
Average annual total return (1/14/1999-12/31/2018): 9.16%
Worst-Day Investments
(Market Highs)
Date of
Market High
Cumulative
Investments
Total
Value
12/31/1999
$10,000
$10,000
3/24/2000
20,000
$17,809
1/30/2001
30,000
$24,154
1/4/2002
40,000
$26,443
12/31/2003
50,000
$44,028
12/30/2004
60,000
$58,805
12/14/2005
70,000
$71,509
12/15/2006
80,000
$92,749
10/9/2007
90,000
$107,269
1/2/2008
100,000
$73,973
12/28/2009
110,000
$103,440
12/29/2010
120,000
$129,005
4/29/2011
130,000
$141,093
9/14/2012
140,000
$173,470
12/31/2013
150,000
$239,654
12/29/2014
160,000
$282,309
5/21/2015
170,000
$295,932
12/13/2016
180,000
$341,189
12/18/2017
190,000
$425,620
9/20/2018
200,000
$415,560
Average annual total return (12/31/1999-12/31/2018): 6.91%
Sources: Thomson Reuters and S&P 500 Index
Riding It Out
Note that the hypothetical investors above didn’t pull out of the market, but stayed the course for 20 years. That perseverance helped improve the chances that they would come out ahead. In fact, history has shown that positive outcomes occur much more often over longer periods than shorter ones.
Over the past 91 years, the S&P 500 has gone up and down each year. In fact 27% of those years had negative results. As you can see in the chart below, one-year investments produced negative results more often than investments held for longer periods. If those short-term one-year investors had held on for just two more years, they would have experienced nearly half as many negative periods.
And the longer the time frame — through highs and lows — the greater the chances of a positive outcome. Indeed, over the past 91 years, through December 31, 2018, 94% of 10-year periods have been positive ones. Investors who have stayed in the market through occasional (and inevitable) periods of declining stock prices historically have been rewarded for their long-term outlook.
History has shown the longer the period, the greater the chances of a positive outcome:




Sources: Thomson Reuters and S&P 500 Index
The Best in the Worst of Times
The past decade has been unsettling for many investors. The recession of 2008–2009 made some investors so fearful, they stopped contributing to their accounts — or even withdrew their money at market lows, thus locking in the losses. They may have thought sitting out for a while seemed like a good strategy. But trying to avoid the worst drops means also missing the opportunity for gains (and frequently investors get out too late to avoid the worst of the decline). The chart below shows what would have happened to a hypothetical investment of $1,000 in the S&P 500 in the decade of 2009 through 2018 if an investor had missed the best days of that period.
If the $1,000 investment hadn’t been touched through the full period, it would have grown to $2,775 — with an average annual return of 10.75%. But missing 30 of the best days in that period would have put the investor in negative territory, losing 8.18% of the initial value.
The more missed best days, the steeper the loss:

Source: S&P 500 Index
Of course, investors could also leave the market and miss the worst days. However, studies show that people generally stop investing when the market is down, after an especially difficult downturn, and they return after the market has already begun to bounce back.
Rather than trying to predict highs and lows, it’s important to stay invested through a full market cycle. Focus on the time you stay invested, not the timing of your investments.
The S&P 500 Index (“Index”) is a product of S&P Dow Jones Indices LLC and/or its affiliates and has been licensed for use by Capital Group. Copyright © 2019 S&P Dow Jones Indices LLC, a division of S&P Global, and/or its affiliates. All rights reserved. Redistribution or reproduction in whole or in part are prohibited without written permission of S&P Dow Jones Indices LLC.