Get best of the week

When is the best time to invest?

Hello everyone. Recently I read a post on Habr ״ How to become a dollar millionaire in 30 years, lying on a sofa ״. Judging by the activity in the comments, the topic of investing is relevant. Many are interested in the question, when is it best to invest? What will happen if today I buy shares, and tomorrow they fall? Wait for a fall, and only then invest? Or just buying stocks every month?I want to share with you my translation and advice in the realities of the Russian Federation of this article with Reddit.

I downloaded the historical data of the S&P 500 for 40 years. He placed everything on Google Sheets and modeled three different portfolios named after three fictional friends of Michael, Nikita and Anton. All three set aside $ 200 a month for 40 years, totaling $ 96,000 each. But they all received different totals depending on their investment strategy.

Michael is a total loser


Michael invests in the most unfortunate time, before the collapse of the market. He saves $ 200 per month on bank deposits, earning 3% per year. After accumulating for 8 years, he invests in ETFs on the SP 500 at a market peak in 1987, just before Black Monday and, as a result, crashes by 33%. But he never sold his ETFs and instead started saving up money again to do the same for the next three peaks before the market crashed. Each time, he invested the entire amount of money saved only in order to immediately observe the collapse of the market. Not so long ago, he invested all his money the day before the financial crisis of 2007. Since then, he has been saving money in anticipation of the next peak of the market.

How much money has he got at the moment? His $ 96,000, which he set aside and invested over the past 40 years, now costs $ 663,594. Despite the fact that he invested only at the peak of the market, the buy-and-hold strategy paid off. Since he never sold, his investments always recovered and grew, as the market inevitably recovered, far exceeding his initial entry points.



Nikita Lucky


Nikita, unlike Michael, was lucky. He also set aside his money on bank deposits, earning 3%, but he correctly guessed the very bottom of each of the four crises and invested all his money saved in those days. Once invested, he also held an index fund, saving up for the next market crash.

As a result, his invested 96,000 dollars turned into 956,838 dollars today. This is certainly more than Michael, but it is interesting to note that when comparing the absolute worst time on the market with the absolute best, the difference is only 44% of the increase. Both Michael and Nikita make the most of their profits thanks to the buy and hold strategy.

Anton do not care


Anton was different from his friends. He did not try to calculate the best time for investment. He did not look at stock prices and did not listen to doomsday forecasts. He did only one thing. On the day I opened my account in 1979, I organized auto-investment of $ 200 per month in the S&P 500 index fund. And that’s all.

Each month, an additional $ 200 was automatically invested in his index fund at any current price. He invested at every peak of the market and at every day of the market. But his money was never on a bank deposit, bringing 3%.

Despite the fact that he did not have Nikita’s incredible fortune to guess the bottom of the market, Anton’s investments exceeded Nikita’s investments by more than $ 400,000. His uniform approach increased the bill to $ 1,386,429.

Summary


  • Each invested $ 96,000 for 40 years
  • Strategy - Buy and Hold Index Fund
  • Worst Time - $ 663,594
  • Best Time - $ 956,838
  • Monthly - $ 1,386,429

Calculations can be found in this table .

What conclusion can be drawn from this? In order to get a good result in the stock market, following the “buy and hold” strategy, you do not need to know the best time to invest and do not be afraid of the worst. Just invest every month in an index fund like SP 500 and in a few decades you can become rich and not worry about retirement. Although there is one important rule in investment. Success in the past does not guarantee success in the future.

In Russia, for investors there is an excellent bonus from the state. By opening a special brokerage account called IIS, each year you can receive a tax deduction of 13% from the amount of replenishment up to 400 thousand. I have been investing for more than a year and at the moment my portfolio has grown to 500 thousand rubles. If this topic is interesting, then in my next post I’ll tell you why I decided to select companies, and not just buy ETFs.

Thank you for your attention and a successful investment.

More articles:


All Articles