Here’s a sobering thought: Nobody’s perfect. I know, I know. Hard to digest. But it’s particularly relevant when it comes to investing.
Recognizing that no matter how much research and effort you put into your investment strategy, it’s virtually impossible to buy or sell assets based on absolute market highs or lows. In fact, your attempts to do so may even result in lower investment returns and missed opportunities.
The only way to predict a market high or low with 100% accuracy is through hindsight. Therefore, if you transfer money out of stocks when the market is down, you may not get back in time when prices begin to increase.
Rather than trying to find the “perfect” time to invest, the better alternative is to adopt a balanced investment strategy that aligns with your personal risk tolerance and time frame.
As a caution: past performance does not guarantee future returns, but historically the stock market has always rebounded from downturns. And rebounds can come about quickly.
Since you don’t have a foolproof way of knowing when the market will rebound, you might miss an opportunity by failing to invest. For example, in 1990, the S&P 500 dipped 6%, only to bounce back 34% the following year.
And in 2008, the S&P 500 average fell 38% for the year, though it bounced back 26.5% in 2009.
Those are historical examples and don’t guarantee future results, but you get the idea.
The key is to be consistent and understand that perfection is an unattainable standard when investing.
*The Standard and Poor’s 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. The S&P 500 is an unmanaged index which cannot be invested in directly.