I’m amazed at the power of “time in the market.”
More money has been lost waiting for a correction than has actually been lost in corrections. I think it comes down to human nature, and how unintuitive investing can seem at times.
Theories like “buying the dip” sound great on paper but rarely work out in reality. Getting in and out of cash also sounds great on paper but rarely works out, either. This is because one has to be right two times: once to get out and once to get back in. It’s tricky business.
The simple answer to all of this is buy and hold. Another great strategy is to put your fears of market corrections aside and simply buy in when you have the money. Get a paycheck? Buy in. Get a lump sum of inheritance? Buy in. Time in the market trumps timing the market. The math proves it to be true.
I was astounded to read the wisdom of how that actually works out, not just in theory, but also in reality, when Of Dollars and Data wrote:
If you get $100k inheritance, the math and history say you are best off simply putting it into the market immediately, even if a correction is seemingly imminent. What?? Yes. People are so fearful of doing so, they often dollar cost average it in over 24 months rather than right away. However, even if they took their $100k and put it all in on a conservative bond fund, they would likely come out ahead of simply DCA into a stock fund.
It’s a short yet profound article that explains why lump sum is so important; why time in the market (lump sum) often beats timing the market (dollar cost averaging) when investing. We dollar cost average because we are nervous, but we lump sum to win.
This is why I highly recommend front loading all retirement accounts as much as possible because it gets us closest to lump sum as we can. Max out the 401(k) by mid year; put all IRA money into the account on January 2nd. Get your money working for you as soon as you can!
Cheers.