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.
Time in the Market Has Outweighed the Timing of Your Initial Investment
“Worst” Times to Invest in the S&P 500 Index
|Date of Market Peak||Negative Market Event That Ended Bull Market||Portfolio Value on Peak Day||Bottom Before Recovery||Time to Recover Investment|
|9/1/2000||Dot-com Bubble Burst||$10,000||$6,433||6.1 years|
|3/19/2002||Accounting Scandals||$17,850||$11,957||1.8 years|
|10/9/2007||Sub-Prime Mortgage Crisis||$36,386||$17,933||4.5 years|
|1/6/2009||Global Financial Crisis||$32,362||$23,564||0.3 years|
|2/19/2020||COVID-19 Pandemic||$158,190||$104,737||0.5 years|
|Total investment: $50,000
Balance as of 12/31/20: $178,240
Data Sources: Ned Davis Research and Hartford Funds, 2/21. Assumes a $10,000 investment on each date in column 1. The portfolio values in column 3 are cumulative.
Another reason not to stress about timing: Despite bumps and stumbles along the way, stocks have historically grown over the long run, as FIGURE 2 shows. And 78% of the market’s best days have occurred during a bear market or during the first two months of a bull market when it was difficult to tell whether a bull market had even begun.1 This means sitting out could mean significantly missing out.
In short, for long-term investors who have the time horizon to weather ups and downs, the length of time you’re in the market matters far more than what the market is doing when you invest.
How to Get in—and Stay in
Part of weathering the market’s ups and downs is making sure you’re working with a financial professional to build a customized portfolio that aligns with your goals and risk tolerance. Having an intentionally designed portfolio can help you feel more confident during difficult market environments, which in turn can help you stay invested long term.
In addition, consider setting a predetermined amount to invest on a regular schedule. This can help reduce that internal “is this a good time?” debate and help you stick to your plan, regardless of the market environment.
Stocks Have Grown Over the Long Term Despite Bear Markets
Growth of $10,000 invested in the S&P 500 Index 1990–2020
Source: Morningstar Direct, 2/21. Past performance does not guarantee future results. Investors cannot directly invest in an index.
Talk to your financial professional about setting up a systematic investing strategy to help you stay invested.
S&P 500 Index is a market capitalization-weighted price index composed of 500 widely held common stocks.
1Ned Davis Research, 2/21, time period from 1991-2020.
Important Risks: Investing involves risk, including the possible loss of principal. • Diversification does not ensure a profit or protect against a loss in a declining market. • Systematic investing does not guarantee that your investments will make a profit, nor does it protect you against losses when prices are falling.
This information should not be considered investment advice or a recommendation to buy/sell any security. In addition, it does not take into account the specific investment objectives, tax, and financial condition of any specific person. This information has been prepared from sources believed reliable but the accuracy and completeness of the information cannot be guaranteed. This material and/or its contents are current at the time of writing and are subject to change without notice.