The S&P 500 hit several all-time highs last year and remains an important investment choice for those seeking exposure to the largest publicly traded companies in the United States.
A popular social media account focused on dividend stock investing highlighted how investors who are afraid to properly time the market miss out on future profits.
what happened: Released in 1993, SPDR S&P 500 ETF Trust (NYSE:SPY) is America's first publicly traded exchange-traded fund.
Since then, the major S&P 500 index ETFs have grown to $500 billion in assets under management and remain among the most traded and watched ETFs today.
Popular X Accounts dividend growth investor We recently shared a backtest where we invested $1,000 annually in SPY from 1993 to 2023 to see how much impact timing the market had on investors.
Four tests went down based on:
Investor A: Invest $1,000 per year at the first available closing price of the year
Investor B: Invest $1,000 per year at the highest closing price of the year.
Investor C: Invest $1,000 per year at the lowest closing price of the year.
Investor D: Invest $1,000 per year at the last available closing price of the year.
Backtesting assumes that fees and dividends are not reinvested.
The returns for investors are as follows: Today's values are:
Investor A: $207,000.72
Investor B: $177,796.12
Investor C: $228,001.77
Investor D: $187,997.16
Related link: How to invest in index funds
Why it's important: The results show that, as expected, investors who invested at the lowest closing price benefited the most. The results also show that those who invested $1,000 annually at the first close of each year performed better than others.
Surprisingly, the returns for those who invested at the highest closing price and the last available closing price of the year were not significantly different.
“My bottom line is, don't time the market. Even if you keep buying at the lowest price each year (which is impossible), you actually bought everything at the lowest price that year. “You can't outperform others.”Earlier this year,” the investor tweeted.
The investor also said there is a fear of buying at the top of the market, which is also impossible to do consistently and can inhibit returns based on backtesting.
“If you start averaging and building up your investments year after year, you're effectively shrinking. You're taking a long-term approach and building wealth.”
Backtesting can be just a hypothetical investment, an idea that investors should have done, but it can also show past patterns.
legendary investor warren buffett often say that index funds are the best investment for most people.
Read next: Why buy stocks in a presidential election year? History has crazy statistics for you
Photo: S&P 500 illustration (via Shutterstock)
