When is the right time to invest?

When is the right time to invest?
When is the right time to invest?

Imagine it's the time of the year when you get an annual bonus. You have spare money left and you want to invest it in the stock market, but you are not sure if now is the right time! Do you have to wait? How long? Should you invest at all or leave the money on deposit in a bank?

Now imagine facing this question every year.

Is there a rule you can follow in such situations?

Many analyzes of leading financial institutions show curious results when comparing two popular investing behaviors. One is called market timing. As its name suggests, with it one aims to buy or sell stocks or bonds at the most appropriate moment in the market by predicting future price movements.The other investment strategy is regular investing.

Let's look at example 1 with four friends - Peter, Maria, Ivan and Anna. We assume that each of them annually performs well in their work and receives an annual bonus of BGN 2,000 for 20 years. BGN 2,000 may not necessarily be a bonus, but, for example, savings during the year. So, the friends decide to invest the bonus or saved money in shares of leading American companies represented by the S&P 500 index.

In order to see the results of the different strategies, this example uses the actual values ​​of the S&P 500 index for the period 2001-2020

• MARKET TIMING: Peter is a genius investor (or really lucky) – he always manages to feel when the markets will be at their lowest point and invests right then.

• MARKET TIMING: Maria tries to implement Peter's strategy, but she doesn't have his "experience" (or luck). So it turns out that every year she invests her money at the worst possible market moment. And it is when the markets are at their highest point.

• INSTANT INVESTMENT: Ivan doesn't wait - he invests the moment he receives his bonus.

• REGULAR INVESTMENT: Anna divides BGN 2,000 into 12 equal installments, investing BGN 167 at the beginning of each month, regardless of the state of the markets.

Whose investment performed best for the period 2001-2020?

Of course, "wizard" Peter generates the highest yield. But who ranks after him and with what result? Immediately after Peter is Anna, who does not have to think about the market, calculate, try her luck. She simply invests automatically and regularly at BGN 167 per month. Ivan follows her, and finally Maria remains.


This time is different! Is it? You may have heard this commonly used phrase when it comes to investing, the market situation and expected returns.

Is the example shown a basis for conclusions and what would the results be for other 20 year periods? A study by a leading global investment bank shows that regardless of the period, the ranking of our four friends is similar to that shown in the example above.

Of the 68 total 20-year periods from as far back as 1926 analyzed (eg 1926-1945, 1927-1946, etc.), in 66 of those 68 cases, the immediate and regular investment strategies, presented by Ivan and Anna, are in constant 2nd and 3rd place!

What does this mean to you?

Given the fact that the probability of successful long-term market timing is close to the chance of the lottery, the most realistic and rewarding strategies for most investors is to invest immediately or regularly.

Regular monthly investment of small amounts is the optimal strategy to avoid "postponing the moment" and benefit from short-term market dips, i.e. we invest at low prices.

Read more about the topic here.

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