Author Topic: Market down early, up later -vs- up early, down later  (Read 883 times)

MoneyGoatee

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Market down early, up later -vs- up early, down later
« on: June 26, 2019, 03:25:19 PM »
I remember someone mentioning this to me, but I don't remember what the significance of it was.  Suppose two investors contribute identically over the years, but one encounters a down market initially and an up market later, while the other investor has the opposite experience.  After the up-and-down period, the market stays stable for several years.   The downturn and the upturn are mirror images of one another as shown below, so one would expect both investors would end up with the same amount.  But in fact, one investor gains dramatically more.  By Year 15, the first investor will have gained 18% more than the second.  This advantage diminishes over time if the market continues to remain stable.  But Investor 1 will still have gained 10% more than Investor 2 by Year 52.  This advantage will never go below 9.4% ever.   The only way both investors will gain the same amount is if they contribute nothing after Year 1.  Subsequent contributions are what cause the difference.  Is there a lesson to this for us all, or isn't there?




Freedomin5

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Re: Market down early, up later -vs- up early, down later
« Reply #1 on: June 26, 2019, 03:57:20 PM »
The lesson is not to freak out if you’re in the accumulation stage and the market drops. Just keep investing regularly.

UncleX

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Re: Market down early, up later -vs- up early, down later
« Reply #2 on: June 27, 2019, 12:15:14 AM »
Investor 2 has to work and invest for 18 more months to reach the same amount as investor 1. The lesson is that you have to be flexible.

vand

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Re: Market down early, up later -vs- up early, down later
« Reply #3 on: June 27, 2019, 12:28:23 AM »
Of course, if you are lucky enough to be presented with a bear market at the start of your investing career, your discounted buying has longer to compound you will get a better result.
This shows the advantage of cost averaging into a falling market.

I think the real lesson is, as much as anyone thinks they may be a genuis... sheer luck also plays a big part. No one can control when bear markets will happen.
« Last Edit: June 27, 2019, 12:30:23 AM by vand »

Blueberries

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Re: Market down early, up later -vs- up early, down later
« Reply #4 on: June 27, 2019, 09:02:31 AM »
If you're able to predict the general market, then yes, there is a lesson.  If not, then no.  A lot of people get hung up on trying to get all the money available to them at any time.  It's futile.  You will never win that game.  There's always more to be saved, some other, better investment at that precise moment, etc.