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Chart of the Day: Even Worst Timing is Better than Cash

Samuel A. Kiburz Sep 14, 2023
 1991 and 2002 recessions, 2008 Global Financial Crisis, 2009 European debt crisis and holding cash shown in shades of blue

Contents

Today’s Chart of the Day and commentary is from Invesco and shows three instances when cash balances were high — following the 1991 and 2002 recessions, the 2008 Global Financial Crisis, and the 2009 European debt crisis — and calculates what $12,000 invested yearly in the stock market for 10 years would have been worth.Below are four investing scenarios:

  • Perfect timing assumes that an investor maximized their return in the S&P 500 Index each year.
  • Worst timing assumes that an investor minimized their return in the S&P 500 Index each year.
  • First of the year imagines an investor moving the entire $12,000 into stocks as a lump sum at the start of each year.
  • Dollar cost averaging assumes an investor made a $1,000 per month investment in the index yearly.

These scenarios are compared to the returns an investor would have if they simply continued to hold cash (calculated using the Bloomberg 1 - 3 Month US Treasury Index).

In each instance, investors would have been better off investing their money in stocks versus holding cash — regardless of how they did it. Investing a lump sum at the first of the year and dollar cost averaging were both sound strategies. While all investors would like perfect timing, even having the worst timing each year still outperformed cash.

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