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Market Timing in the Long Run
Spring 2021, by the CIO office (NBC)
MYTH
The timing of your annual savings investment is of utmost importance for the well-being of your portfolio in the long run.
REALITY
The timing of your annual savings investment will make a difference in the long run, but it is far from being the critical factor many seem to believe. Case in point: consider an investor blessed with the power of perfect market timing (blue line) compared to another investor cursed with systematically picking the worst possible day to invest each year, over 30 years (red line). In the end, the market timing champion would have outperformed the most unfortunate of all investors by a mild 1.1%/year. If we take the more realistic example of an investor saving systematically at the beginning of each month, this annual outperformance shrinks below 1%. How is such a small gap possible? Simply because in the long run, the first year's return is superfluous. What truly matters is the frequency of savings and passage of time, not market timing.
(data via Refinitiv)
