I’ve had many conversations that have started the same way—“Domingo, I have never invested in the stock market before. Is now a good time to get in?”
My response is always the same: The best time was yesterday and the second best time is today.
Consider the following table, which shows what happens to $100 when you put it in a Money Market account yielding 0.3% per year at different points:
If you look at putting in $100 in the account in 2011 vs 2016, you make an additional $1 in this example. Sounds like no big deal, right?
But I’d ask you to look at it differently.
Instead of thinking about it as just one dollar, in terms of percentages. Instead of putting money in the account in 2016, if you had deposited the money into the account 5 years earlier, you would have made 100% more money. That’s right. Because $2 is 100% greater than $1.
And this is just with a 0.3% annual return.
Now let’s look at how this looks alongside other investment options:
Value in 2022
While there is no predicting which direction the Market will go, you can see that in each case starting earlier has historically been more beneficial.
In the case of the S&P 500, not only has it been a more beneficial investment option than the others on this table, getting in earlier gives it more time to appreciate.
In the last 50 years, the S&P 500 returned over 600%. If you were invested in only half that time (over the last 25 years), you might think that the returns would be cut in half, right?
But in reality if you delayed investing by 25 years, the return wasn’t just half that—it was 72% less!
Now, I do have to call out that being invested in the stock market is not like the other investments shown in the table. The S&P 500 hasn’t always gone up. There are periods when it goes up and other times it goes down. But if you are a long-term investor, it is important to understand that even the best stock market investment may have moments that it loses value.
The important thing to remember is that each moment you remain uninvested may have exponential impact. And most people that see their wealth grow don’t do so overnight or by jumping in an out of the market. They did so slowly and patiently, but perhaps most importantly they did so as early as they could.