Making Up for Poor Timing

Chart of the Week: Making Up for Poor Timing

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.

This material is distributed for informational purposes only. The ideas and opinions contained herein  should not be viewed as recommendations or personal investment advice. Data and statistics contained in this report are obtained from what we believe to be reliable sources; however, their accuracy, completeness or reliability cannot be guaranteed.

Our statements and opinions are subject to change without notice. You may request a free copy of the firm’s Form ADV Part 2, which describes, among other items, risk factors, strategies, affiliations, services offered and fees charged.

Past performance is not an indication of future returns. Tax, legal and insurance information contained herein is general in nature, is provided for informational purposes only, and should not be construed as legal or tax advice, or as advice on whether to buy or surrender any insurance products. Personalized tax advice and tax return preparation is available through a separate, written engagement agreement with Adviser Investments Tax Solutions. We do not provide legal advice, nor sell insurance products. Always consult a licensed attorney, tax professional, or licensed insurance professional regarding your specific legal or tax situation, or insurance needs.

For a summary of Adviser Investments’ advisory services and fiduciary responsibilities to our clients, please review our Form CRS here.

© 2022 Adviser Investments, LLC. All Rights Reserved.

Tags:

Chart of the WeekcompoundingJeff DeMasomarket timingportfolio manager