The S&P 500 index (SNPINDEX: ^GSPC) has put up an average total return of 15.7% per year during the past decade. From a historical perspective, this is exceptional. It’s worth noting that this figure includes every crash that has occurred along the way.
The path is never a smooth one. Since October 2016, the benchmark has suffered five corrections, meaning drops of 10% to 20% from a recent record high. It has also endured two bear markets, or declines of more than 20%.
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Consequently, many investors believe waiting for the right moment is the smart move. After all, there is always fear, uncertainty, and doubt. Something always looks ready to break.
But the right moment never announces itself. And waiting for the perfect time to invest in the stock market is a losing game. History says it could cost you.
Don’t try to time the market
It’s probably true that every investor wants to buy low and sell high. This is one of the most popular investment sayings. The goal is to avoid the downturns, and capture the rallies. It all sounds so easy.
But the market’s best days tend to happen close to its worst ones. Investors who sell at the right time in a panic then need to correctly figure out when the rebound will happen. That’s an impossible game.
Look at the numbers. The S&P 500 index produced a total yearly return of 10.3% from 1995 to 2025. Missing just the 10 best days would shrink that performance drastically to 7.4%, resulting in an ending sum that was 56% less than had you been fully invested. Those 10 days represented a minuscule share of all trading days during that time. You would be better served staying still.
Frequent trading makes things worse. Your decisions have to be right much more often than they are wrong. It’s not worth the risk. Most active retail traders lose money.
Compounded returns are powerful
Investors need to understand that time in the market is what matters most. In other words, compounding is the driver behind incredible stock returns. Warren Buffett knows this. His net worth is $151 billion right now. Virtually all of that was earned after he turned 65 years old.
That’s because compounding is back-heavy. Gains generate their own gains, and the snowball adds up in the later years. A hypothetical $10,000 capital outlay growing at 15% per year would be worth $662,000 after 30 years. The final five years, though, contributes about half of that ending dollar figure.
