Making Up for Poor Timing

Chart of the Week: Making Up for Poor Timing

February 14, 2022

I thought I was getting a jump on things by contributing to my nine-month-old son’s 529 plan at the start of the year. Then I caught myself thinking: If only I had waited a month or simply been a little slower to get my act together, I could’ve bought in at lower prices!

It’s a normal reaction, but ultimately the wrong one. Over the course of time—and in this case, I’ve got about two decades to go before the little guy heads off to college—these short-term timing frustrations barely register. What matters is that I’m putting that money to work in the markets.

To reassure myself (and you) that this is true, I looked back over the last 30 years and compared two investors. One invested $1,000 into Vanguard’s 500 Index fund each year on the last trading day of the year without fail. The other investor was quite unlucky and invested their $1,000 into the index fund at the high point each and every year. After 30 years, the year-end investor’s portfolio was worth more than $200,000. The unlucky investor’s portfolio? Nearly $193,000. That’s only a 4% difference in end value—not bad at all for 30 years of bad luck!

Long-term investment success is about spending time in the markets, not timing the market—and regular contributions to your account can take away the sting of buying just before one of the market’s periodic dips.

Investing discipline pays off
Note: Chart shows growth of a hypothetical $1,000 initial and subsequent annual $1,000 investments in Vanguard’s 500 Index fund from the end of 1991 through 2021 (sum of contributions in this scenario was $31,000). The year-end investor line was calculated by adding the $1,000 at the end of each year, while the ‘unlucky’ investor line was calculated by adding the $1,000 at the fund’s highest price each year. Sources: Morningstar, Adviser Investments.


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