I previously wrote about the impossibility of successfully beating the S&P 500 through market timing. But many people are still afraid to invest in stocks, especially when the market is setting new highs, for fear of buying just before a major market drop. If you can’t time the markets, what can you do to avoid losses?

Before addressing that question, let’s revisit some of the stock market’s worst performances. On March 24, 2000, the S&P 500 began a slide that at its peak exceeded 49% and that lasted for over seven years. It was subsequently referred to as the bursting of the dot-com bubble. Starting in October 2007 the index dropped over 56% and did not fully recover until April 2013. That became known as the great recession. More recently the 2020 COVID shutdown caused a 32% market drop from February 19^th through March 23^rd. A new high was not reached again until November 4^th.

If you are one of those people who are fearful of stock losses, imagine if you had invested a large amount of money right before each of those market crashes. Sound scary? Let’s make it worse by assuming that the only three times you bought stocks in the past 25 years were right at those three peaks. What do you think would have happened to your money 25 years later? Let’s find out.

We’ll assume you had bought $100,000 worth of an S&P 500 index fund on March 23, 2000, the last day before the dot-com bubble burst. And then on October 8, 2007, at the peak before the great recession, you bought another $100,000 of the same fund. To top it all off, you then chose to invest your last $100,000 cash right before the COVID peak. By that time you’d probably be thinking of yourself as the world’s worst investor.

Would you have any money left by the time 2024 rolled around? Probably more than you thought. As of 9/30/2024 your first $100,000 would be worth $377,341. The second $100,000 would have increased to $368,179. And your investment right before COVID would have grown to $170,171. Add in the additional dividends you would have received since 2000 and your $300,000 would have grown to over a million dollars.

How is this possible? It’s because the market grows much more than it declines. And by leaving your money invested over time you are taking advantage of compounding growth.

Would there have been a better way to invest over 25 years? Yes. It’s called dollar cost averaging and it’s the simplest way to mitigate the risk of poor investment timing. It’s simply investing a small amount of money regularly and repeatedly over time. Employees do this as a matter of course with company 401(k) or 403(b) plans. Following such an automated approach to stock investing helps take much of the emotion out of investing. And it creates a habit of saving that will – along with exercise and nutritious eating – serve you well as you grow older.

You can’t time the markets. But there’s really no need to try. Save what you can when you can and invest it following a strategy based on what you’ll need for your future. No one will call you the world’s worst investor. And you’ll worry a lot less too!

(Sources: Nasdaq.com, Kaggle.com)

(PERIGON is a registered investment adviser. More information about the firm can be found in its Form ADV Part 2, which is available upon request by calling 877-977-2555 or by emailing compliance@perigonwealth.com).