According to Peter Lynch, it’s not worth thinking about. Peter Lynch is another name commonly mentioned in the list of world’s greatest investors and he was also known for commissioning his research department to do some interesting studies.
One of them looked at the difference between making your annual contributions to your investment account at the absolute lowest point of the year versus the highest point of the year. This particular study covered 30 years between 1965 and 1995 and assumed you saved $1000/year to the S&P500.
If you had picked the lowest point of the year your annual rate of return would have been 11.7% compounded.
If you had picked the highest point of the year to make your annual contribution, or as Mr. Lynch puts it: you were the real Jackie Gleason of the world – then your compounded annual return would have been 10.6%.
You can see that the difference isn’t as significant as you would imagine! He also asked the research department to calculate the return for someone who just invested their money on the first day of the year – the result?: 11.0% compounded…
So if you pull out your hair trying to time the markets, maybe Mr. Lynch’s study will help put you at ease…
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