3 So Ashley's pattern of investing first thing did, over time, yield lower buying prices than Matthew's monthly discipline and, thus, higher ending wealth. After all, in a typical 12-month period, the market has risen 75.6% of the time. Matthew's dollar-cost-averaging approach performed nearly as well, earning him third place with $134,856 at the end of 20 years. This relatively small difference is especially surprising considering that Ashley had simply put her money to work as soon as she received it each year-without any pretense of market timing.

But the study's most stunning findings concern Ashley, who came in second with $135,471-only $15,920 less than Peter Perfect. Naturally, the best results belonged to Peter, who waited and timed his annual investment perfectly: He accumulated $151,391. Actually, we looked at 76 separate 20-year periods in all, finding similar results across almost all time periods. He was always convinced that lower stock prices-and, therefore, better opportunities to invest his money-were just around the corner.įor the winner, look at the graph, which shows how much hypothetical wealth each of the five investors had accumulated at the end of the 20 years (2001-2020). Larry Linger left his money in cash investments (using Treasury bills as a proxy) every year and never got around to investing in stocks at all.She received her second $2,000 at the beginning of 2002 and invested it on January 4, 2002, the peak for that year. For example, Rosie invested her first $2,000 on January 30, 2001-that year's highest closing level for the S&P 500. Rosie Rotten had incredibly poor timing-or perhaps terribly bad luck: She invested her $2,000 each year at the market's peak.You may already be doing this through regular investments in your 401(k) plan or an Automatic Investment Plan (AIP), which allows you to deposit money into investments like mutual funds on a set timetable. This strategy is known as dollar-cost averaging. Matthew Monthly divided his annual $2,000 allotment into 12 equal portions, which he invested at the beginning of each month.Ashley Action took a simple, consistent approach: Each year, once she received her cash, she invested her $2,000 in the market on the first trading day of the year.He continued to time his investments perfectly every year through 2020. He waited and invested the money on October 9, 2002, the lowest closing level for the market for that year. At the beginning of 2002, Peter received another $2,000. Rather than putting it immediately into the market, he waited and invested on September 21, 2001-that year's lowest closing level for the S&P 500. For example, Peter had $2,000 to invest at the start of 2001. He had incredible skill (or luck) and was able to place his $2,000 into the market every year at the lowest closing point. Peter Perfect was a perfect market timer.2 (While we recommend diversifying your portfolio with a mix of assets appropriate for your goals and risk tolerance, we're focusing on stocks to illustrate the impact of market timing.) Check out how they fared: Each received $2,000 at the beginning of every year for the 20 years ending in 2020 and left the money in the stock market, as represented by the S&P 500 ® Index. Consider our research on the performance of five hypothetical long-term investors following very different investment strategies.

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Market timing