Investors in the stock market can either be prescient or lucky sometimes and occasionally time the top or bottom of the stock market during certain periods, but nobody can consistently time the highs and lows over an extended period of time. For this reason, the best strategy for the average person who wants to save for retirement or invest in the stock market is to simply buy a broad-based index like the S&P 500 or NASDAQ and not waste your time trying to time the market or picking a certain set of stocks.
The following video illustrates how someone with even thee worst timing in the stock market but who diligently saved throughout their 40-plus year working career starting in 1977, still became a millionaire by the time they retired in 2019:
Saving $2,000/year for the first decade of your working career and bumping that up by $2,000 for every additional decade you work ($2,000/year in your 20’s, $4,000/year in your 30’s, $6,000/year in the 40’s and then $8,000/year in your 50’s until you reach retirement age) doesn’t seem unreasonable to me if you have a white collar job or a higher paying trade job, but I understand that’s probably not as feasible for those with blue collar or service jobs, though it’s certainly not impossible.
The video points out that if Bob would have simply put his money consistently into the stock market instead of unluckily buying into the stock market at its peaks, he would have had almost $2.5 million instead of the $1.1 million he ended up with. So obviously, just dollar cost averaging into the stock market is the best approach over the long term.
Past performance does not guarantee future results and nobody knows how the stock market will perform over the next 40 years, but at this point it’s hard for me to see how the stock market doesn’t keep averaging an 8% annual return over the next several decades.
Moral of the story is that since nobody can precisely call the highs and lows in the stock market, it’s best to simply buy into the stock market consistently and HODL.
