Each time a lottery jackpot skyrockets, ticket sales spike. Even those who aren’t regular lottery players don’t want to be left wondering if they’ve missed their big chance.
Investing, on the other hand, is less trivial. When it’s your retirement on the line rather than a $2 lotto ticket, you may question whether it’s the right time to be in the market. Have stocks peaked and we’re in for a downturn? Will this bear market ever end?
However, it’s impossible to know whether the market is entering a bear or bull market until after the fact. That’s why, historically, investors have been better served by simply being invested rather than waiting for a “better” time to invest.
Seeing the Forest for the Trees
We looked at the most recent bear markets in the S&P 500 Index (defined as a 20% drop from the most recent market peak). Since 1990, the market has experienced five of them.
As FIGURE 1 shows, even if you had the worst possible timing—meaning you invested $10,000 on each of the five peak days immediately before a bear market began—your investments would have lost value initially but recovered in an average of 2.7 years. Your hypothetical investment of $50,000 would have grown to $178,240 as of 12/31/20.
In other words, even if you managed to repeatedly invest at the worst-possible times, the amount you invested still would have more than tripled. While past performance doesn’t guarantee future results, it’s encouraging to see that, historically, the market has eventually rebounded from its deepest selloffs.