Timing the stock market is something many try. But to maximize your return on investments, consistency is actually far more important. In fact, the chart below illustrates a study performed by economics author Robert Goodman regarding individuals attempting to time the market.
The chart shows three scenarios in which investors put $5,000 into the stock market every year since 1960. Investor A is very lucky and manages to pick the best day of the year to buy. Investor B does not try to time the market and invests on July 1 of each year. Investor C is unlucky and invests on the worst day of each year.
Note that the annualized returns are surprisingly similar. Also, note that the lucky investor accumulated $140,000 more than the investor who didn’t time the market, while the unlucky investor lagged the consistent investor by $280,000. Worse than being unlucky, the individual who invested $5,000 solely in Treasury bills each year over the same period ended up with only $569,179.
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