All dollar values in this tool are shown on a nominal basis.For the “market timing” scenario, the dividends are re-invested on the next day when the % gap to all-time high threshold is breached For the “regular” investing scenario, the dividends are re-invested on the day that they are received. It is assumed that dividends are automatically re-invested.As such, this tool will always be up to date for yesterday’s closing price The closing price of the VFINX index fund is updated automatically on a daily basis.Market prices for the S&P 500 index are based on the “Vanguard 500 Index Fund Investor Shares (VFINX)” fund.Meanwhile, Troy’s money grew at an average of 11.7% per year. As a result, Abed never invests in the market at all! His savings stay entirely in cash, earning 2% per year. The highest decline was 33.5% from the peak during 1987’s “Black Monday”. In this case, the market never declined by more than 45% in this 15-year period. In this case, Abed would have underperformed by $74,251(!). Meanwhile, Troy’s regular investing strategy would have only yielded $124,211. Īt the end of 1994 (a 15-year period), Abed would have a grand total of $49,960 in his portfolio. Let’s assume that Abed used the same strategy (only investing when the market is down by 45%), but starts in the year of 1980 (instead of 1997 as shown above). However, we can also cherry-pick an example on the other end of the spectrum. His strategy allowed him to capitalize on the bursting of the dot-com bubble (a decline of 49.1% from the peak) and the great financial crisis of 2008 (a decline of 56.6% from the peak). In this case, Abed would have outperformed by $14,537.Ībed’s strategy was so successful because he correctly predicted that there would be severe market declines on the horizon. Meanwhile, Troy’s regular investing strategy would have only yielded $59,050. Īt the end of 2011 (a 15-year period), Abed would have a grand total of $73,587 in his portfolio. Let’s assume that Abed started investing in 1997 with $6,000 initially, +$200 added per month, and a strategy of investing only when the market was down by 45%+ from the all-time high price. That’s not to say that market timing can’t yield big profits. He never made any big trades during market crashes, and never held off from investing when the market might have looked “too high”.Īll in all, Abed’s market timing strategy underperformed Troy’s regular investing strategy. In comparison, Troy invested his $200 monthly contributions into the market like clockwork. As the S&P 500 index rose steadily from 2012 to 2018 - routinely setting new all-time high prices - Abed funneled his monthly contributions into a savings account instead of putting it to work in the markets. On the other hand, Abed’s strategy results in him keeping cash on the sidelines when the market is doing well. For example, during the mini market crash of December 2018 - which saw the S&P 500 decline by 20.1% from its peak price - Abed had nearly $21,000 of cash which he used to buy stocks ‘on the cheap’. Not to mention that Troy also saved the stress of tracking the daily fluctuations of the market and used the time to hone his paintball tactics…Ībed’s strategy allows him to capitalize on stock market corrections / crashes. In this case, Troy ends up with $6,076 more than Abed.Abed end up with $63,414 (an average annual return of 12.1%).Troy ends up with a final portfolio value of $69,490 (an average annual return of 13.5%).Using the actual performance data of the S&P 500 index from 2010 to the end of 2019 (a period of 10 years), how did they fare? They start investing on January 1st, 2010. He only invests in the market when the current price is at least 20% lower than the all-time high price He keeps his money in a savings account earning 2% per year, while monitoring the price of the stock market each day.
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