Retirement

When You Buy Stocks Makes A Big Difference In Long-Term Returns

Investors frequently are told that they are long-term investors, so they shouldn’t worry about fluctuations in the markets. They are told to invest and hold for the long-term.

But the data show that when you buy stocks makes a big difference in your long-term returns, according to Bespoke Investment Group.

An investor who made a lump sum investment in the S&P 500 at the end of 1979 and reinvested dividends would have an annualized return of 11.6% through early March 2023.

But an investor who purchased the index at the end of 1999 (shortly before the tech stock crash) would have had an annualized return of only 6.4%.

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Changing the starting date of a stock investment by even one year can make a big difference in long-term investment performance. An investor who purchased the S&P 500 at the end of 2007 would have had an annualized return of 9% through early March 2023. But delaying the purchase to the end of 2008 would have increased the annualized return to 13.3%.

Other studies, such as those by John Hussman of Hussman Strategic Growth fund, found that someone who bought the stock index in 1999 or 2006 would have earned the same or a lower return as someone who bought only treasury bills at those times.

It can make a lot of sense to suspend stock purchases or reduce stock holdings when stocks are highly valued or the financial system seems shaky.

But you have to make two decisions correctly. A number of investors sell or delay purchases when stocks seem more risky than usual. The mistake too many of them make is they don’t increase their stock holdings when the outlook improves. They leave a lot of money on the table but not moving money into stocks.

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