In the current bear market, the S&P 500 bottomed -- at least for now -- in October 2022. Since that point, the broad-market index has rallied by about 16%. Given that upward momentum over the past six months or so, failing to put money into stocks last fall may feel like a missed opportunity. But don't be so sure.
For one thing, trying to time the market is generally a losing game. Of course, it would be ideal if you could keep your money on the sidelines during declining periods, and then put it all into the market at the bottom. It would also have been nice to know yesterday's lottery numbers ahead of time. But it is impossible to predict either of these things with any accuracy or consistency.
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The good news is that you don't need to buy stocks at the bottom to have a meaningful impact over the long run. The S&P 500 is still roughly 15% below its all-time high, and historically speaking, that has been a very good level to invest during downturns, regardless of whether the market goes up or down in the short term.
A real-world example of "bad timing"
Consider the bear market caused by the 2007-2009 financial crisis. Obviously, it would have been great to have invested all of your money at the March 2009 bottom, but let's realistically assume that your timing wasn't perfect.
Prior to the financial crisis, the stock market peaked in early October 2007. It started to decline toward the end of the year as the subprime mortgage market started to unravel, and by the end of February 2008, the S&P 500 had declined by 15% from its high. Let's say that this is when you decided to get aggressive and invested the cash you had on the sidelines. And for sake of this example, we'll assume that your investments simply matched the performance of the S&P 500 over time.
In the short term, you probably wouldn't have been too happy with your decision to invest when you did. Bear Stearns collapsed the following month, and the market continued on a downward trajectory for another year. At the bottom of that trough, in March 2009, the S&P 500 had lost a staggering 52% of its value. But you weren't able to take advantage as much as you would like, since you invested heavily after the benchmark index had only declined by 15%.
While this may sound like a terrible predicament, you might be surprised at the kind of results this "poor timing" would have produced. In the 15 years since your hypothetical early 2008 investment, the S&P 500 has produced a total return of 324%. That amounts to annualized returns of about 10.2%, and would have turned a $10,000 investment then into about $42,400 now. Not bad for a case of supposedly poor timing.
The bottom line
In down markets, don't worry too much about when you invest. While it would certainly be nice to get lucky and catch the market at the bottom, chances are good that you'll look back in a decade or two and be happy you decided to put money into excellent businesses while the market was well above its bottom, but still well below its prior highs.
