The POWER of Dollar Averaging
Some people might get lucky with random timing in the market, however being able to do it long term accurately and consistently is quite impossible. This is not just my opinion and it has been studied quite thoroughly. For example, an investing firm analysed the investing data between 5 different groups of investors between 2011 and 2020 and this is what they found:
Hypothetical $2,000 annual investments in S&P 500 Index.
The first type of investor invested$2,000 at the absolute LOWEST price point of each and every year.
$40,190
The second investor just invested $2,000 at the beginning of each year.
$38,938
The third investor invested each and every month throughout each year.
$37,148
The fourth investor invested at absolute highest price or the worst timing every year.
$34,663
The 5th investor invested didn’t do anything at all and just kept the money in cash waiting for a market crash.
$28,715
Obviously, the best investor type was, the one who made the perfect timing each and every year. But the surprising result is that the second and third investor type of investors who just invested $2,000 every consistently year at set interval came in just $1,252 to $3,042 less than the investor who had literally perfect timing each and every year down to the exact 10 years straight.
Even the 4th type of investor who had the worst possible timing who put in the money when the price is at the peak every year had a total investment return of $34,663 which is still decent.
And the last type of investor who was hoarding cash waiting for a market crash came in much worst at only $28,715.
I think this is pretty clear. Even if you somehow managed to have perfect marketing timing down to the exact hour over the 10 years, you are going to come ahead an extra ~4.1% opposed to the person who didn’t spend time worrying about timing and just invest no matter the current situation.
Again, the chances of you being able to time the market to perfection every single year over 10 years… statically, it’s just not going to happen.