The S&P 500 has hit several all-time highs over the last year and remains a key investment option for those looking for exposure to the largest American public companies.
A popular social media account focused on dividend stock investing highlighted how investors scared of properly timing the market may miss out on future gains.
What Happened: Launched in 1993, the SPDR S&P 500 ETF Trust (NYSE:SPY) was the first U.S. listed exchange traded fund.
Since then, the leading S&P 500 Index ETF has grown to $500 billion in assets under management and remains one of the most traded and closely watched ETFs today.
Popular X account Dividend Growth Investor recently shared a backtest of investing $1,000 in the SPY each year from 1993 to 2023 to see how much of an impact trying to time the market had for investors.
The four tests were down based on the following:
Investor A: $1,000 invested per year at the first available closing price for the year
Investor B: $1,000 invested per year at the highest closing price for the year
Investor C: $1,000 invested per year at the lowest closing price for the year
Investor D: $1,000 invested per year at the last available closing price for the year
The backtests assumed no commissions and dividends being reinvested.
Here were the returns according to the investor, with today's value listed below.
Investor A: $207,000.72
Investor B: $177,796.12
Investor C: $228,001.77
Investor D: $187,997.16
Related Link: How To Invest In Index Funds
Why It's Important: The results show that the investor who invested at the lowest closing price gained the most, which was expected. The results also show that the person who invested $1,000 annually at the first close each year outperformed others.
Surprisingly, the return between the person who invested at the highest closing price and the last available closing price of the year weren't that far apart.
"The conclusion that I have is to avoid timing the market. Even if you consistently buy at the low of the year, every single year (which is impossible to do), you are not really that better off than someone who bought everything at the beginning of the year," the investor tweeted.
The investor also said that fear of buying at the top of the market, which is also impossible to do consistently, could prevent returns based on the backtest.
"When you start averaging out, and stacking those investments year in and year out, brick by brick, you are in effect zooming out. You are taking a longer-term approach and building wealth."
While backtests are only hypothetical investments and could be a should've, could've idea for investors, they can also show historical patterns.
Legendary investor Warren Buffett has often said that for most people, index funds are the best investments to make.
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