Friday, January 28, 2011

When Investing in the Market, Timing Is Everything

Pretty much all investment advisors say the same thing: don't try to time the market. On the surface, that's not terrible advice - after all, no one can predict the future, including stock market returns.

The problem with this advice, however, is that unless you're a sophisticated trader, timing is everything, as demonstrated by this fascinating New York Times graphic. Here's a part of the graphic:



As the NYT explains:
This chart at right shows annualized returns for the S.& P. 500 for every starting year and every ending year since 1920 — nearly 4,000 combinations in all. READ ACROSS THE CHART to see how money invested in a given year performed, depending on when it was withdrawn.
I'm trying to decide what this means for my own retirement planning, but whatever it means, it can't be good.

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