Each time a lottery jackpot skyrockets, ticket sales spike—despite the knowledge that the increased popularity lowers the odds of winning. 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 staying invested regardless of the market environment rather than waiting on the sidelines for a “better” time to invest.
Seeing the Forest for the Trees
Here’s some context for why there may not necessarily be better or worse times to invest. We took a look at the most recent bull and bear markets in the S&P 500 Index1 (a bear market is defined as a 20% drop from the most recent market peak; a bull market is a 20% increase from a market bottom). Since 2000, there have been four of each.
As FIGURE 1 shows, even if you had the worst possible timing—meaning you invested $10,000 in the S&P 500 Index on each of the four peak days before a bear market—your investments would have lost value initially but recovered in an average of 3.2 years. Your hypothetical $40,000 would have grown to $129,298 as of 9/30/19.
Now compare that to having the best possible timing—investing $10,000 at each of the market bottoms that preceded the four most recent bull markets. If you were lucky enough to catch every bull market as it began, that $40,000 investment would have grown to $203,168.
Time in the Market Outweighs the Timing of Your Initial Investment
“Worst” Times to Invest
|Date of Market Peak||Amount Invested at Peak||Time to Recover $10k|
Total investment: $40,000
Balance as of 9/30/19: $129,298
“Best” Times to Invest
|Date of Market Bottom||Amount Invested at Bottom|
Total investment: $40,000
Balance as of 9/30/2019: $203,168
Source: Ned Davis Research, 10/19. Past performance does not guarantee future results. Investors cannot directly invest in an index.
There’s a difference in outcomes between the scenarios in FIGURE 1, but there’s also a notable similarity: whether the timing was “good” or “bad,” the initial investment grew over time, tripling in even the worst-case scenario. While past performance doesn’t guarantee future results, it’s encouraging to see that, historically, the market has eventually rebounded from even the sharpest selloffs.
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 70% 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.2 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, it matters less what the market is doing when you invest. Rather, how long you stay invested matters far more.
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 in a variety of market environments, which in turn can help you stay invested for the 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 by investing regardless of market conditions.
Stocks Have Grown Over the Long Term
Growth of $10,000 invested in the S&P 500 Index 9/30/89 – 9/30/19
Source: Morningstar Direct, 10/19
Talk to your financial professional about setting up a systematic investing strategy to help you stay invested.
1 S&P 500 Index is a market capitalization-weighted price index composed of 500 widely held common stocks.
2 Ned Davis Research, 2/19, time period from 1999-2018.
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. This material may not be copied, photocopied or duplicated in any form or distributed in whole or in part, for any purpose, without the express written consent of Hartford Funds.