## Which day of the month - with a twist

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sls239
Posts: 656
Joined: Thu Oct 23, 2008 4:04 pm

### Which day of the month - with a twist

I wouldn't even know where to begin to calculate this so I thought I'd ask and see if anyone had already worked this out or perhaps something similar.

Pretend that there is a Investor A who invests \$500 (adjusted for inflation) every month on the 15th of the month (or closest business day) for 10 years

And Investor B who invests \$500 (adjusted for inflation) every month, but tries to time that purchase. Unfortunately, he is very bad at timing and instead ends up buying on the worst day of every month (the day with the highest valuation).

How much worse does Investor B do than Investor A?

kerplunk
Posts: 637
Joined: Sun Apr 17, 2011 9:58 pm

### Re: Which day of the month - with a twist

If an investor falls in the forest and no one is around to hear him or her, does he or she make a sound?

Which came first, the investor or the egg?

I'm not sure what you are asking about. Are you saying that there is a time of the month where it is bad to invest money?

Taylor Larimore
Posts: 21795
Joined: Tue Feb 27, 2007 8:09 pm
Location: Miami FL

### Re: Which day of the month - with a twist

sls239 wrote:I wouldn't even know where to begin to calculate this so I thought I'd ask and see if anyone had already worked this out or perhaps something similar.

Pretend that there is a Investor A who invests \$500 (adjusted for inflation) every month on the 15th of the month (or closest business day) for 10 years

And Investor B who invests \$500 (adjusted for inflation) every month, but tries to time that purchase. Unfortunately, he is very bad at timing and instead ends up buying on the worst day of every month (the day with the highest valuation).

How much worse does Investor B do than Investor A?

sls239:

I saved this from a "Louis Rukeyser's Wall Street" newsletter written in 1995:
It isn't particularly important what level the market is at when you start investing. Evan an investor with the most pathetic luck imaginable does just fine if he keeps at it.

Here's what I mean. Say you invested in the S&P 500 at the start of every year since 1965. As of mid-1995, you'd have racked up an annual return of 11% . But what if you were ill-fated enough to invest at the peak of the market each year? It would hardly have mattered. Your annualized return would have "plunged" all the way down to 10.6%

Conversely, if you had had the good fortune to invest at the low point each year, your return would have risen only 0.7% to 11.7%. In other words, in the long run it doesn't matter much whether your timing is great or lousy. What matters is that you stay invested.

Stay the course.

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

sls239
Posts: 656
Joined: Thu Oct 23, 2008 4:04 pm

### Re: Which day of the month - with a twist

Thank you so much! I was wondering if otherwise disciplined investors were shooting themselves in the foot by trying to time their monthly deposits.

z3r0c00l
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Location: NYC
Contact:

### Re: Which day of the month - with a twist

sls239 wrote:Thank you so much! I was wondering if otherwise disciplined investors were shooting themselves in the foot by trying to time their monthly deposits.

They are not disciplined in our meaning of the word. Or they are, but to a poor strategy. Nothing sounds worse to my ears than "buy on the dips." It indicates a fundamental misunderstanding about how markets move over time.

EmergDoc
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Joined: Fri Mar 02, 2007 9:11 pm
Location: Greatest Snow On Earth
Contact:

### Re: Which day of the month - with a twist

Taylor Larimore wrote:
sls239 wrote:I wouldn't even know where to begin to calculate this so I thought I'd ask and see if anyone had already worked this out or perhaps something similar.

Pretend that there is a Investor A who invests \$500 (adjusted for inflation) every month on the 15th of the month (or closest business day) for 10 years

And Investor B who invests \$500 (adjusted for inflation) every month, but tries to time that purchase. Unfortunately, he is very bad at timing and instead ends up buying on the worst day of every month (the day with the highest valuation).

How much worse does Investor B do than Investor A?

sls239:

I saved this from a "Louis Rukeyser's Wall Street" newsletter written in 1995:
It isn't particularly important what level the market is at when you start investing. Evan an investor with the most pathetic luck imaginable does just fine if he keeps at it.

Here's what I mean. Say you invested in the S&P 500 at the start of every year since 1965. As of mid-1995, you'd have racked up an annual return of 11% . But what if you were ill-fated enough to invest at the peak of the market each year? It would hardly have mattered. Your annualized return would have "plunged" all the way down to 10.6%

Conversely, if you had had the good fortune to invest at the low point each year, your return would have risen only 0.7% to 11.7%. In other words, in the long run it doesn't matter much whether your timing is great or lousy. What matters is that you stay invested.

Stay the course.

Best wishes.
Taylor

Thanks Taylor. Hadn't seen that one before.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course

Taylor Larimore
Posts: 21795
Joined: Tue Feb 27, 2007 8:09 pm
Location: Miami FL

### Old files.

EmergDoc:
Thanks Taylor. Hadn't seen that one before.

I had to go back a long way to find it in my files. It contains an important lesson worth knowing.

Best wishes
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

Karamatsu
Posts: 1158
Joined: Mon Oct 27, 2008 2:42 am

### Re: Which day of the month - with a twist

It's an interesting question. I don't have inflation data handy so I just assumed investment of the same nominal amount each month, investing in the S&P 500. Assuming investment from January 1970 through January 2014, choosing the best day of each month (lowest price) yielded a CAGR of 6.71%. Choosing the worst day of each month (highest price) yielded 6.55%. Investing on the 15th yielded 6.63%... exactly in the middle. All of this considering only price changes (no dividends), and buying only whole shares, so there's residual cash that is not invested.

It's quick-and-dirty and I may have made errors, but the stunning lack of a difference is consistent with the data that Taylor presented. Alas it seems that 11% was overly optimistic!

Bogle101
Posts: 306
Joined: Mon Oct 01, 2012 10:14 am

### Re: Which day of the month - with a twist

I once read an article that if you invested during the year and pulled out the day before the ten best days (or conversely sold the day before the ten biggest drop days) your results would be terrible (or tremendous). But how one would actually do that without being Marty McFly or Biff or Doc is beyond me
25% S&P 500 | 25% Extended Market | 20% International | 10% REIT | 10% Sector Funds | 10% Cash

JamesSFO
Posts: 2538
Joined: Thu Apr 26, 2012 10:16 pm

### Re: Which day of the month - with a twist

Nice reminder not to time the market, I happen to do my systematic investments on the 15th.

Jeff7
Posts: 323
Joined: Sat Nov 24, 2012 2:30 pm

### Re: Which day of the month - with a twist

Taylor Larimore wrote:...
I saved this from a "Louis Rukeyser's Wall Street" newsletter written in 1995:
It isn't particularly important what level the market is at when you start investing. Evan an investor with the most pathetic luck imaginable does just fine if he keeps at it.

Here's what I mean. Say you invested in the S&P 500 at the start of every year since 1965. As of mid-1995, you'd have racked up an annual return of 11% . But what if you were ill-fated enough to invest at the peak of the market each year? It would hardly have mattered. Your annualized return would have "plunged" all the way down to 10.6%

Conversely, if you had had the good fortune to invest at the low point each year, your return would have risen only 0.7% to 11.7%. In other words, in the long run it doesn't matter much whether your timing is great or lousy. What matters is that you stay invested.

Stay the course.

Best wishes.
Taylor

Quite a worthy save.

That's impressive.

Maybe that'd be the way for some to satiate their desire to at least try to time the market.
- Commit to making the monthly investment of X dollars, per your asset allocation.
- The investment MUST be made by month's end.
- You get to choose on which date to do the investment.

It looks like it won't make much difference, but it might at least feel like one. If that's what it takes to keep someone from getting all gambly with stock trading, I think that's worth it.

lrak
Posts: 87
Joined: Tue Jun 26, 2012 9:46 am

### Re: Which day of the month - with a twist

Karamatsu wrote:Alas it seems that 11% was overly optimistic!

http://dqydj.net/sp-500-return-calculator/ calculates the annualized return reinvesting dividends. It shows 10.3% from Jan 1970 to Jan 2014. Slightly optimistic, but not overly optmistic.

I however started career and my 401k in Jan 1999. Using that as the start date produces 4.4% annualized return reinvesting dividends. 5 year CDs were paying over 6% in 1999. No year before 2009 shows double digit annualized returns.

Karamatsu
Posts: 1158
Joined: Mon Oct 27, 2008 2:42 am

### Re: Which day of the month - with a twist

It's good to see that dividends matter, but at the same time that's a different scenario. From what I can see of the calculator, it's the equivalent of buying X shares in January 1970 and holding them until January 2014. The 6% figure is buying every month along the way, so even though the index is near its historical highs, and almost every purchase will show a gain to some degree, the average gain per purchased lot will be a lot less than the 1970-2014 trade suggests, lowering the final return proportionally. But in any case the real story isn't so much the numbers as the fact that they vary so little whether you buy on the best day, the worst day, or something in-between. That really is pretty stunning.

Of course, the TA crowd will say that buying every month is too restrictive and they only buy/sell when the green line crosses the red line, or the parabolic Fibonacci triple-cross candlestick pattern looks like George Washington's profile. And they'll have back-testing to prove it! For what that's worth...