Bad at timing the market? You can still make lots of money...

This article just came up on CNBC, but the origins were from February of this year, so it may be germans. Either way, I think the board will appreciate the insight:

LINK

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Meet Bob.

Bob is the world’s worst market timer.

What follows is Bob’s tale of terrible timing of his stock purchases.

Bob began his career in 1970 at age 22. He was a diligent saver and planner.

His plan was to save $2,000 a year during the 1970s and bump that amount up by $2,000 each decade until he could retire at age 65 by the end of 2013 (so $4,000/year in the 80s, $6,000/year in the 90s then $8,000/year until he retired).

He started out by saving the $2,000 a year in his bank account until he had $6,000 to invest by the end of 1972.

Bob’s problem as an investor was that he only had the courage to put his money to work in the market after a huge run up.

So all of his money went into an S&P 500 index fund at the end of 1972 (I know there were no index funds in 1972, but just go with me here…see my assumptions at the bottom of the post).

The market dropped nearly 50% in 1973-74 so Bob basically put his money in at the peak of the market right before a crash.

Yet he did have one saving grace. Once he was in the market, he never sold his fund shares. He held on for dear life because he was too nervous about being wrong on both his sell decisions too.

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To summarize, even though Bob invested his savings right before major crashes, his $184,000 grew to $1.1M over the 43 year period, roughly an 8% annualized return on his money.

Dollar-cost averaging during the same time period would have grown to $2.3M, but this article illustrates that even with his terrible timing of the market, Bob always had time in the market on his side.

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***Assumptions and disclaimers: This is fictional and is in no way how you should invest your money. It takes nerves of steel to hold 100% of your portfolio in stocks for decades on end. This is purely an exercise in the power of long-term thinking and compounding. I used the S&P 500 less a 0.20% expense ratio from the 1972 until 1977 when the Vanguard 500 Fund had its first full year. I used the Vanguard 500 Fund from 1977 on so these were actual results from a real fund, not purely hypothetical.

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