A market timing strategy that even a monkey can do |
The difficulty of
timing the market
In the last 13 years alone, we’ve experienced two crashes,
one caused by the dot com bubble bursting in 2001 and another caused by the
sub-prime housing crisis in 2008. Selling immediately before these crashes and
then repurchasing your investments at the trough would have been extremely
profitable. Yet, timing the rise and
fall is close to impossible. Several analysts predicted for years that the
sub-prime mortgage industry would collapse and yet prices continued to rise despite the dire predictions. No one was able to predict when the fateful fall
would actually happen.
Well then, when
should I invest my money?
The secret to investing in the market is to invest right now,
always. Whether you have a lump sum or only a little bit of cash, you should invest right away if you have
money on hand. Over the long-term, the market has
always increased in value. In the chart below, you can see the performance of
the Dow Jones Industrial Average over 114 years from 1900 through the present day (9/21/2014).
Dow Jones Industrial Average performance from 1900 to 2014 from stockcharts.com |
There are high points and very low points over the years in the market, but the
direction has always been up over the long-term (or an approximately 10% compound
annual growth rate per year). Even if you invested money immediately before the
Great Depression in October 1929 or during the Great Depression, today you would still be far
ahead of where you started. Given that over the long-term the market goes up, you
tend to be better off investing today than you are investing tomorrow.
Not sure where to invest? Read the post on deciding where to invest your 401k.
Not sure where to invest? Read the post on deciding where to invest your 401k.