May 15th, 2021


don't time the stock market

This was an interesting week in stock market land. It went down a lot, so the discussion in my finance groups went all over the place, with three main ideas on repeat:

1) People who were worried it was crashing more so maybe they should stop investing
2) People who are thrilled there's a lower price, so they're investing MORE
3) People saying to ignore all of it

#2 was an oddly popular idea, and it comes up a lot... should a savvy investor hold back cash and wait for the big dips/crashes/down weeks? What's the right time to buy in?

Well... they shouldn't have asked me. Because I have spreadsheets and I like to make very long posts. Buckle in for a long ride, nerds.

I made two characters, and gave them each $1000 per month to invest in VTSAX, a popular index fund of the whole stock market.

- Lucy is lazy. She gets her $1000 the first of the month, and just invests it all right then. She probably automates it, then spends the rest of her month just walking her dog.

- Wendy waits and watches. She gets her $1000 a month, then checks every day for a dip, looking for a window of low-price opportunity. She ONLY invests if this week is .02% lower that last week... I tried a few thresholds but you get the picture.

First I set them all up six months ago. Wendy found a lot of dips! She often had $1000-2000 in her account to take advantage of them.

After yesterday's awesome dip, Wendy bought in. She now has $6250. Lazy Lucy only has $6249. Thanks to all her hard work timing, Wendy is ahead by $1!

I looked at some other times. What if this week hadn't happened, what if we ended this scenario May 1? Well that wasn't good, Wendy only had $6491, Lucy has $6526... Lazy Lucy wins by $35.

December and January is what did it. There were little fluctuations but Wendy never found a good time to get in. There was finally a great dip at the end of January and Wendy had $2000 parked and ready, it fell from $98 to $95 and she jumped at it! But Lucy had bought in at $93 right after Jan 1... without spending any time, it was just automatic, and she'd bought at $92 on December 1, which was an all time high that Wendy said was a terrible time to buy.

Using yesterday as the end point...

I ran it for 12 months. Wendy has $12312, Lucy $12467 - ahead by $154

I ran it for 5 years. Wendy has $87617, Lucy $89278 - ahead by $1660

So then I invited MARGE, who splits the difference... she waits for a dip, and if it doesn't happen, she invests at the end of the month. $88657... still can't beat Lucy because most months go up.

I created people who looked at month to month comparisons for their dips, daily comparisons, changed thresholds... still, nobody beats Lucy. Maybe we shouldn't call her lazy? Is she lucky? Or just darn smart? She's got more money, that's for sure.

Oh and then finally the worst... Peggy who pays a financial advisor 1% a year to watch the market for her and look for these dips, she is $4200 worse than anybody.

I could keep going but I feel like I got the point. And looking at the chart below you can probably see it... the blue lines are the 1st of the month. The orange lines are the nine biggest dips. 4 out of the 9 dip prices are higher than the last monthly price!

So... I'm not a financial advisor and this isn't financial advice, but I do not hold back cash to wait for crashes. I do not pull out funds when the market is high so I can re-invest later. I do not try to time the market. Laziness pays off. I do not watch for dips. I spend my extra time posting on livejournal. Much more fun.