What's the best time of the year to invest?


According to Peter Lynch, it’s not worth thinking about. Peter Lynch is another name commonly mentioned in the list of world’s greatest investors and he was also known for commissioning his research department to do some interesting studies.

Money-BigStacks.jpgOne of them looked at the difference between making your annual contributions to your investment account at the absolute lowest point of the year versus the highest point of the year. This particular study covered 30 years between 1965 and 1995 and assumed you saved $1000/year to the S&P500.

If you had picked the lowest point of the year your annual rate of return would have been 11.7% compounded.

If you had picked the highest point of the year to make your annual contribution, or as Mr. Lynch puts it: you were the real Jackie Gleason of the world – then your compounded annual return would have been 10.6%.

You can see that the difference isn’t as significant as you would imagine! He also asked the research department to calculate the return for someone who just invested their money on the first day of the year – the result?: 11.0% compounded…

So if you pull out your hair trying to time the markets, maybe Mr. Lynch’s study will help put you at ease… 

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Preet Banerjee
Preet Banerjee
...is an independent consultant to the financial services industry and a personal finance commentator. You can learn more about Preet at his personal website and you can click here to follow him on Twitter.
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  • rose

    Hi Preet, love your blog…great info for Canadians!

    Do you have any links to these "studies" by Peter Lynch? I’d like to read more into it.

    thanks!

  • Preet

    Hi Rose – thanks for reading! I don’t know of any links off the top of my head – although two of his books that I have read are littered with these research studies.

    They are: One up on Wall Street and Beating The Street.

    Both books are excellent reads and I think his writings will give you some more insight into his methods.

    I will point out though that his books are more geared towards the art of stock-picking.

    No matter what your style of investment is however, you will probably pick up some valuable information from his books.

    In the meantime – I will try to find some of his works or references online and create a small post on them in the next week.

    Also, my post on "leveraging the right way" (Part 1) had some interesting information on the markets that you might like as well. I’ll paste it here:

    "Here is some interesting food for thought:

    1. Since 1950 there has never been a 10 year rolling period where the TSX lost money. The lowest 10 year average rate of return was 3.3% from September 1964 to September 1974. The best 10 year average rate of return was a whopping 19.5% from August 1977 to August 1987.

    2. The lowest 30 year average rate of return was 8.6% from June 1952 to June 1982. The highest: 12.7% from August 1970 to August 2000.

    3. The single worst 1 year rolling period for the TSX was June 1981 to June 1982 during which time the index lost a massive 39.2%.

    4. The single best 1 year rolling period for the TSX was the very next year from June 1982 to June 1983 when the market returned 86.9%.

    But the take home message for most investors is that we DO believe the markets generally go up, and given enough time the returns on our portfolios will be positive. In reality, it can be VERY hard to stay the course, especially after a year like 1981-1982. How many people had the discipline to stay the course and actually take advantage of the next year’s spectacular returns?"