Best time to invest: market timing could mean missed opportunities

Money Digest, Feb, 1998

The current outlook for equities doesn't seem to be as rosy as it was a year ago. The markets in Canada and the United States have been highly volatile in the last few months.

Many investors describe themselves as `long-term investors,' meaning that they will not be swayed by market volatility in the short-term. However, in reality, when the market starts going down, investors redeem their investments, often at a loss.

Unfortunately this is not a good idea. Why? Because most market gains are not even. They happen unexpectedly, and in just a few days. Here are a few studies that might show how the stock market performed over the year.

A study by Ibbotson shows that between the years 1926 and 1995, a $10,000 investment would have soared to $10,114,000. Yet out of those 70 years had you missed the best 35 months, your investment would be worth $101,600.

A study by the University of Michigan shows that between 1963 and 1993, $10,000 would have grown into $240,300. But if you had missed the best 90 days during this period, your investment would have been worth only $21,000.

In the 1980s, the Standard & Poor 500 Index rose 16.2% in 2,526 trading days. Nearly 80% of these gains took place in just 40 days!

Moral: You can't predict what the market will do. Stay invested at all times.

What about the danger of investing at the wrong time -- when stock prices are high? An analysis by Templeton shows that even if you invest on the worst possible day of the year, year after year, a long term investor will come out ahead. So don't time the market. Be invested at all times.