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S&P 500 All-time highs since 1950 and a generic investing rant
Posted on 5/9/13 at 3:58 pm
Posted on 5/9/13 at 3:58 pm
Since January 3rd, 1950, through May 9th, 2013, there have been 15,940 trading days. The S&P 500 has closed at an all-time high on 1,079 of those days (6.769%).
Since the S&P 500 burst through to a new all-time high on 3/28/2013, it has risen another 3.66%.
My point in all of this is that people waiting on the sidelines may be waiting for a long time. If you didn't buy stocks in January of 1959 because you were scared of the all-time highs, by the end of 1969, you had missed out on 66.75% cumulative gains, or 5.24% annually. Don't let the last 10 years scare you away from the overall trends in equities.
Investing with discipline and purpose is a proven long-term solution. Timing the market has proven to be nearly impossible. When you look back in 10 years, there will be hundreds of stocks* that you will wish you would have purchased at their 2013 "all-time" highs.
That is all.
*I can tell you these stocks for a small fee.
Since the S&P 500 burst through to a new all-time high on 3/28/2013, it has risen another 3.66%.
My point in all of this is that people waiting on the sidelines may be waiting for a long time. If you didn't buy stocks in January of 1959 because you were scared of the all-time highs, by the end of 1969, you had missed out on 66.75% cumulative gains, or 5.24% annually. Don't let the last 10 years scare you away from the overall trends in equities.
Investing with discipline and purpose is a proven long-term solution. Timing the market has proven to be nearly impossible. When you look back in 10 years, there will be hundreds of stocks* that you will wish you would have purchased at their 2013 "all-time" highs.
That is all.
*I can tell you these stocks for a small fee.
3
Posted on 5/9/13 at 4:03 pm to slackster
Stop pumping and dumping the s&p
Posted on 5/9/13 at 4:25 pm to I Love Bama
Posted on 5/9/13 at 4:52 pm to slackster
That's an excellent point that I've heard many times before. There are short bursts of gains, and trying to time them consistently is folly.
I guess dollar cost averaging low cost index funds is boring.
I guess dollar cost averaging low cost index funds is boring.
Posted on 5/9/13 at 7:35 pm to CoolHand
Actually, dollar cost averaging is usually not in your favor in the long run. I'm on mobile but there are a few articles you can find that support that claim.
Posted on 5/9/13 at 7:37 pm to slackster
quote:
Actually, dollar cost averaging is usually not in your favor in the long run. I'm on mobile but there are a few articles you can find that support that claim
Please post said articles. DCA is a very solid strategy for an investor in my opinion.
Posted on 5/9/13 at 7:44 pm to Janky
quote:
Please post said articles. DCA is a very solid strategy for an investor in my opinion.
I agree. Mathematically, lump sum is better, if you aren't buying at peak, IF.
I do a combination of DCA (only because if I don't force myself to invest a set dollar amount each month, I'll develop a habit of trying to time the market and end up being too cautious) and I also do lump sums when I find a bargain on a stock, or if there's a correction and Wall Street has a fire sale.
Posted on 5/9/13 at 9:19 pm to Janky
quote:
Please post said articles. DCA is a very solid strategy for an investor in my opinion.
In practice, vs. randomized or lump sum investing, this is typically not borne out. Time in the market is a greater edge than timing the market. Money is going to be sitting on the sidelines waiting to be DCA'd over a given interval, earning less than it would over time if invested lump sum.
Posted on 5/9/13 at 9:21 pm to Dead Mike
How can this be proven? Over how long of a period?
Posted on 5/9/13 at 10:10 pm to Janky
quote:
How can this be proven? Over how long of a period?
Vanguard Article
Investopedia Article (FWIW)
JSTOR paper from George Constantinides
MSN Money Article w/more basic simulation
These articles, especially the Vanguard study, basically sum up the advantages of lump sum investing vs. DCA. Logically, investing a greater sum of money earlier provides more market exposure over a longer period of time. If we are setting forth a long-term investment strategy, then it stands to reason that we are betting on a long-term increase in overall market value, and thus the longer and more openly exposed we are to market fluctuation, the better we expect to perform. We are investing precisely because we think market performance will be superior to cash holdings, but in the case of dollar cost averaging, we would be purposely holding significant portions of our intended contributions in cash holdings over time.
In reality, the average investor is probably employing DCA with a significant portion of retirement assets, as 401k contributions are regular, fixed installments and IRA contributions can be considered regular installments over the course of decades, given the yearly cap.
Posted on 5/10/13 at 5:29 am to Janky
quote:
Please post said articles. DCA is a very solid strategy for an investor in my opinion.
Dead Mike pretty much nailed it. Over time DCA tends to produce lower overall gains than lump sum investments.
On the other hand, in short term bear markets, of course DCA is a solid strategy. Basically, on average, DCA produces lower gains than lump sum investments, but provides better protection from bear markets. Given the overall bull market nature of the market since 1950, it stands to reason that lump sum investing is the more successful strategy.
Posted on 5/10/13 at 5:31 am to Dead Mike
From the abstract of the Vanguard article:
quote:
The study finds that on average, the lump-sum approach would have outperformed dollar-cost averaging about two thirds of the time, even when returns are adjusted for the higher volatility of a stock/bond portfolio versus cash investments. Dollar-cost averaging minimizes downside risk, but introduces other risks including the potential for lower returns due to a temporary portfolio allocation to cash.
Posted on 5/10/13 at 8:35 am to slackster
Slack,
Not second guessing, because it looks accurate to me, but any references here?
Not second guessing, because it looks accurate to me, but any references here?
Posted on 5/10/13 at 11:11 am to Cmlsu5618
quote:
Not second guessing, because it looks accurate to me, but any references here?
Not sure how to link to my Excel haha. I used the Yahoo! Finance historical closes going back to January 3rd, 1950. One =LARGE equation, a few conditionals, and a count function did the rest of the work. Feel free to check my math, seriously.
Posted on 5/10/13 at 12:23 pm to slackster
As long as you understand 2+2=5, I trust your math.
Neat info though, Slack.
Neat info though, Slack.
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