Is timing the market worth it?

To help myself, and hopefully, you as well, answer the question from the title I created the calculator that compares the dollar cost averaging investment strategy (i.e. not timing the market) with a strategy where we time the market.

As suggested in my previous article Timing the market vs. dollar-cost averaging. A simple analysis I will try to address the first 2 points raised as possible improvements:

• I allow you to experiment with more indices not only with the S&P 500
• You can also select between 3 periods for timing the market and see how timing the market in 3, 5, or 10 year periods impacts the overall result.
• You can change the frequency of how often you want to invest regularly
• And finally, you can choose the investment amount to use in each period

Disclaimer

Firstly disclaimer. I am not a financial advisor, and I don’t intend to be. The articles on this site are meant for educational purposes and should inspire thinking. Make your own decisions and seek the help of professionals when you deem useful.

Although I will be using quite precise numbers, take them with plenty of respect and consideration. These are the past data that can tell us something about the past but are not guaranteed to repeat in the future. In addition, this is a simple analysis to get us a ‘feel’ for the strategies not to get exact answers. The future is unpredictable so bear that in mind, please.

Strategy and data

Two strategies will be used and for both of them, we will look at their best case and worst case version.

1. Not timing the market: Invest $100, regularly every month at the best/worst possible price within a month.
2. Timing the market: Invest $12,000 every 10 years at the best/worst possible price within those 10 years.

The first strategy simulates ordinary life situations. You go to work, earn your salary which gets paid monthly. You then, without analyzing the market invest $100 of it. The price can be high or low you do not check it just buy it. In our example, we assume that you are so lucky, that every month you buy stocks at the lowest possible price during that month (best case scenario) or at the highest possible price (worst case scenario).

In our calculator, you can select Month, Quarter, or Year as the frequency of investments. The calculator also allows you to specify how much you want to invest in each period.

The second strategy is more elaborate. You think you can predict the market thus you will trust your skills and invest a larger amount. You can time the market so well that over every 10 years you can get the lowest price in the market (best case scenario). Well done you! You might also be so bad that you pick the highest price within the 10 year period (worst case scenario).

To make results comparable with the first strategy you need to invest $12,000 every 10 years ($100 a month will invest $1,200 a year. Do that for 10 years and you will arrive at $12,000). This value is calculated automatically in the calculator based on the period and investment amount selected.

A known issue is that if you select start and end dates that do not cover the full period selected for the second strategy, results might not be comparable as investment from the first strategy would be less than investment for the full period of the second strategy. The best way to check if you selected comparable periods is to look at the green bar (Invested) in the chart and adjust dates so that the resulting value is the same for both strategies.

Timing vs. not timing the market calculator ^beta

It is the beta version of the calculator, values to be updated and checked later. For entertainment purposes only. Do your own calculations before investing or making decisions.

Feedback is welcome

Please play with the calculator and let me know what you think. Also if you see any bugs or want to have the latest data or some other indices please let me know and I will try to update and improve the calculator.

Just email me at contact@everydayquant.com

Happy calculating!