personal Finance Story

If you read enough personal finance blogs then you know for a fact that trying to time the stock market is a fools errand. Anyone who says that they have a proven system to track the peaks and the troughs of the market is a liar. Simple as can be.

I’m here to tell you that it’s really a half truth. Stay with me here and I’ll explain.

If you are trying to time to market you are doing one of two things, or both if you think yourself good enough. You can manage to pick bottoms or pick tops or both.

Lets look back at the Dow Jones Industrial Average from 1929 to 2007. This period includes the Great Depression by the way, which started in the fall of 1929. This type of research has been done a few times by various bloggers and writers and it is easily duplicated with Yahoo! finance and your spreadsheet program of choice.

Of the 78 years represented, 54 of those years or just under 70% were positive years. Now if we look at five year periods within the same range we find that 78% made money. Extend the term to 10 year periods and you would have made money 86.9% of the time. When you get to 15 year periods there is not a single one that loses money.

The larger the range of dates, the better the results.

That said, the important thing to take away is that every day is a good day to buy stocks. If you own the entire market (index mutual funds) and have a long term horizon then you cannot lose. Today and everyday is a bottom when you look at least 15 years into the future.

When the market is down, like it is now, the situation gets sweeter. Right now, the Dow is off over 12% from highs set last October. The market will be higher than it was five months ago. It’s guaranteed if you have a time horizon 15 years or longer. The entire downswing that has occurred in the last five months is essentially extra profits!

Forget about picking tops. You don’t need to when you can pick a bottom each and every trading day of the year.

Keep your time horizon long term. Own the whole market with good low cost index funds. The odds are stacked in your favor so make the most of it.  Today is the day to take advantage of this opportunity the market is giving us.

Links>>

• The Digerati Life offers some long term thinking to help you through this recession market opportunity.
• Five Cent Nickel gives us some great quotes on the very topic of market timing.
• Look to the Motely Fool for some solid advice on picking some stocks out of the bargain bin.

This entry was posted on Thursday, March 27th, 2008 at 6:24 am and is filed under Investing. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.