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Time, not timing, is what matters

Investors learning how to invest in the stock market might 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. 

The chart below shows two hypothetical investments in the S&P 500 over the 20-year period ending December 31, 2024. 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 12.25%. 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 10.54%. At the end of 20 years, the cumulative investment of $200,000 had a value of  $626,978.

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 investment

Total
  value

4/20/2005

$10,000

$10,515

1/20/2006

20,000

$22,948

3/5/2007

30,000

$34,527

11/20/2008

40,000

$33,622

3/9/2009

50,000

$57,896

7/2/2010

60,000

$75,813

10/3/2011

70,000

$85,315

6/4/2012

80,000

$109,471

1/8/2013

90,000

$157,550

2/3/2014

100,000

$187,952

8/25/2015

110,000

$195,642

2/11/2016

120,000

$236,382

1/19/2017

130,000

$294,461

12/24/2018

140,000

$285,464

1/3/2019

150,000

$367,945

3/23/2020

160,000

$436,944

1/29/2021

170,000

$557,979

9/30/2022

180,000

$482,381

3/13/2023

190,000

$632,375

1/17/2024

200,000

$802,378

Average annual total return?

(4/20/2005-12/31/2024): 12.25%

Worst-day investments
(Market highs)

Date of

market high

Cumulative investment

Total
  value

3/4/2005

$10,000

$9,877

12/27/2006

20,000

$20,842

10/9/2007

30,000

$30,975

5/2/2008

40,000

$26,654

12/30/2009

50,000

$43,314

12/29/2010

60,000

$57,510

4/29/2011

70,000

$65,240

10/5/2012

80,000

$84,914

12/31/2013

90,000

$122,144

12/26/2014

100,000

$146,386

5/19/2015

110,000

$153,418

12/20/2016

120,000

$185,440

12/28/2017

130,000

$231,724

10/3/2018

140,000

$224,929

12/27/2019

150,000

$289,864

12/31/2020

160,000

$341,639

12/29/2021

170,000

$436,389

1/4/2022

180,000

$376,991

12/28/2023

190,000

$494,220

12/4/2024

200,000

$626,978

Average annual total return
(3/4/2005-12/31/2024): 10.54%

Source: 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 33% 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 82 years, through December 31, 2024, 100% 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

Charts illustrate positive versus negative periods in the S&P 500 Index over the past 91 years, ending December 31, 2024. Over one-year periods, the index had 61 (67%) positive periods and 30 (33%) negative periods. Over three-year periods, the index had 78 (88%) positive periods and 11 (12%) negative periods. Over five-year periods, the index had 81 (93%) positive periods and 6 (7%) negative periods. And over 10-year periods, the index had 82 (100%) positive periods and 0 (0%) negative periods.

Source: S&P 500 Index

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.

S&P 500 Index is a market capitalization-weighted index based on the results of approximately 500 widely held common stocks. The index is unmanaged and, therefore, has no expenses. Investors cannot invest directly in an index.

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