Ben Gran, The Motley Fool
5 min read
The stock market has been wobbling a bit in October. Although the S&P 500 index (SNPINDEX: ^GSPC) hit a new all-time high on Oct. 6, it had declined by about 2% as of this writing. Some investors worry that major tech companies are spending too heavily on the build-out of artificial intelligence (AI), and that future AI tools and products won’t recoup those hundreds of billions of dollars of capital expenditures (capex). Rising bond yields have also recently sent warning signals about high inflation and government debt. Is now still a good time to invest in stocks?
During times of high uncertainty and volatility in the stock market, it’s easy for investors to lose confidence. Sometimes people get tempted to try timing the market. They say to themselves, “I’m going to stop putting money into stocks — for now. I’m going to wait until the stock market goes down by another 5% or 10%. Then I’ll buy back into the market and watch my investments go up!”
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Here’s the problem with this kind of thinking: It’s impossible. There’s no such thing as “waiting for the right time” to invest. That’s because no one knows the future. The stock market can go down and keep going down. Or it can bounce back from a downturn and skyrocket to new highs. All these market moves happen faster than you can decide that “now is the best time” to put money into the S&P 500 again.
Schwab research found something notable: Time in the market (just investing as soon as you can, as soon as you have cash available to deploy) is almost as good as perfectly timing the market (which is impossible). Let’s look at why investing in the S&P 500 early and often is almost as good as the impossibly perfect standard of “choosing the right time” to invest.
Schwab research: Perfect timing outperformed time in the market by only 8.3%
Schwab’s research team analyzed historical S&P 500 returns over 20 years (from 2005 to 2024) to determine which investment strategy yielded the best returns.
They calculated how much an investor could have earned by investing $2,000 per year for 20 years with “perfect market timing” (buying $2,000 worth of S&P 500 shares on the day of each year when the S&P 500 reached its lowest closing level that year). They compared this result with an example investor who invested $2,000 per year for 20 years for maximum time in the market (buying $2,000 worth of S&P 500 shares on the first trading day of each year).
