When should you invest? How to time the market.

*Not personalized financial advice - your money, your choice*

$7.4 trillion.

That’s how much cash Americans are sitting on right now, parked in money market funds - all waiting for the “right time” to invest. 

The problem? There is never a “right time”.

Every day, the market goes up for some and down for others. Headlines tell us that a recession is imminent or that the AI bubble is about to pop. These headlines may be true but the trillion dollar question is “when?”. As soon as you ask that, no one knows. 

The fear that a recession is “about to happen” or that the “AI bubble is surely going to pop soon” is enough to paralyze many of us in fear. It makes keeping our money in a savings account seem like the risk-free option even though doing that would have lost you 30% of your buying power to inflation over the last 5 years.

Lets assume there are 2 people, Lily and Jeff. 

Lily decides it’s best to put dollar-cost-average (DCA) into the market - for her this means investing $100/mo.

Jeff is a saver. He also has $100/mo to spare but, he instead puts it into a checking account with no interest.

If Lily were to invest $100/mo starting in Jan of 2015 through December of 2018 (48mo)  she would have invested $4,800. If she didn’t invest a dollar more, by the end of 2025 she would have a whopping $20,419.

In Jeff’s case, he wouldn’t have done so well. If he invested the full $4,800 at the bottom of the market in December of 2018, then stopped; by the end of 2025 he would be left with just $14,852.

In this scenario, Lily crushes Jeff (DCA vs perfect timing) because of time invested and compounding interest.

Not only that, but if fear had been what was causing Jeff to wait to invest, then it’s likely he would have continued to be afraid. There would be the fear that it wasn’t actually the bottom yet and, if he were ever to get the courage to invest, he’d likely do so when the market was well on its way back to all time highs.

Trying to time the market can feel smart, but when you look back to when you could’ve invested, even when there is a market crash, most of the time, the market bottoms above where it would’ve been 10 years prior to the crash.

That’s where the saying “Time in the market beats timing the market,” comes from.

Fidelity and Bloomberg also did the math on how much in gains you would miss out on if you didn’t invest during the best days of returns in the S&P 500.

Past performance is no guarantee of future results. Source: Fidelity, Bloomberg as of 12/31/24. This is based on the cumulative percentage return of a hypothetical investment made in the noted index during periods of economic expansions and recessions. Index returns include reinvestment of capital gains and dividends, if any, but do not reflect the impact of taxes, fees, or expenses, which would lower these figures. This return information is not intended to imply any future performance of the investment product. "Best days" were determined by ranking the one-day total returns for the S&P 500® Index within this time period and ranking them from highest to lowest. There is volatility in the market and a sale at any point in time could result in a gain or loss. See important information for index definitions. Your own investment experience will differ, including the possibility of losing money. It is not possible to invest directly in an index. All indexes are unmanaged. Source: Bloomberg, S&P 500 Index^® total return for 12/31/49 to 12/31/24; recession and expansion dates defined by the National Bureau of Economic Research (NBER). The S&P 500 Index was created in 1957; however, returns have been reported since 1926, and the index has been reconstructed for years prior to 1957.

If you just missed the 4 best days when investing $10,000 between Jan of 1988 through Dec of 2024, you would miss out on nearly $200,000 in gains. Big L.

If you weren't in the market for just the best 30 days of market returns then you’d be down a whopping $433,786. Almost half a million dollars! That's a lot of avocado toasts.

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