When’s the best time to invest is a question fund managers and financial advisers are often asked.
The best answer, according to the Personal Finance Society is now.
Regardless of the state of the market, there is probably never a better time to stake money on stock markets – because if you delay you may miss crucial days when the market rises.
How did the Personal Finance Society come to this conclusion?
They looked at the Standard and Poor’s 500 from first trading day in 1995 to the last in 2014.
That came to a total of 5,036 trading days available for investors to buy and sell.
Five vital days for investors
If an investor had put $10,000 in to the market on the first day of trading in 1995, the annual yield works out at 9.85% – giving a profit of $55,475.
But putting off the day to invest can prove costly, the study found.
If an investor missed the five best trading days during the period, profits would plunge to $33,435, while missing the 40 best days turned a loss of $856.
Of course, an investor could argue that if they had held back and missed the worst trading days, then their profits would have shown a stellar result of a $540,000 return.
The point, says the society, is the figures show that trying to pick good and bad days to invest and pull money out of the markets is a gamble.
Some people may call right a couple of times, but the likelihood is they would lose over time.
Playing the long game
The investor playing the long game cushioned risk and accepted a lower return for a smoother ride over the two decades.
“When looking at the markets, it’s easy to persuade yourself to sell because share prices are dropping everywhere and you want to minimise any losses,” said a spokesman for the society.
“The problem is if you do that you can miss one of those few rare days that are so vital to boost long term returns.
“Then you have to get back into the market when share prices are more expensive.”
Writers at The Motley Fool agree – don’t worry about timing when to buy an investment but think about how long your money is likely to stay in play.
Then match the type of investment against the risk you are ready to take.
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