How to Perfectly Time The Market

This is the story of three friends, Tiffany, Brittany, and Sarah who saved and invested in the US stock market over the last 40 years (1982-2022). All three saved $200 of their income per month for 40 years for a total of $96,000 each. But after 40 years they all ended up with different amounts based on their investment strategies.

Tiffany, Brittany and Sarah

Tiffany, Brittany, and Sarah all knew the value of buying and holding. And they all invested in the same thing: an S&P 500 index fund. Once they bought, they never sold and always reinvested dividends. But they had different strategies about when to jump into the market.

Tiffany and Brittany were aware that the stock market could be very volatile and they wanted to avoid market crashes. It turns out they were right as there were five significant market crashes during the last 40 years as shown here:

US Stock Market Crashes 1982-2022

Dates of Crash Duration (Days) Percent Drop Event
8/25/1987-12/4/1987 101 33.4% Black Monday
7/16/1990-10/11/1990 87 19.7% Kuwait War
9/1/2000-10/9/2002 768 49.0% Dotcom Crash
10/12/2007-3/9/2009 514 56.5% Financial Crisis
2/19/2020-3/23/2020 33 34.1% COVID Crash

(The recent stock market drop is not being taken into consideration as a major market crash because we are in the midst of it and don’t know if it will continue or if it’s over!)

5 Stock market crashes on a logarithmic scale

Tiffany Top invests at the top of the market
Tiffany, it turns out, has the world’s worst market timing. She saved her $200/month in a savings account getting 3% interest until the worst possible times. She started by saving for 8 years only to put her money in at the absolute market peak in 1987, right before Black Monday and the resulting 33% crash. But she never sold, and instead started saving her cash again, only to do the same at the next five market peaks. Each time she invested the full amount of her saved cash only to watch the market crash immediately after. Most recently she put all her money in the day before the 2020 COVID crash, only to see it immediately drop 34%. She’s been saving cash ever since waiting for the next market peak.

With this perfectly bad market timing, Tiffany still didn’t do too bad. Her $96,000 she saved and invested over the last 40 years is now worth $764,020. Even though she invested only at each market peak, her big nest egg is thanks to the power of buying and holding. Since she never sold, her investment always recovered and flourished as the market inevitably recovered far surpassing her original entry points.

Brittany Bottom invests at the bottom of the market