Why time, not timing, is an investor’s best friend

For many investors, it’s tempting to worry about timing. When should I get in the market? Is this the top? Should I wait? But the data tells a different story. It’s not timing the market that will make the difference for your returns – it’s the time you spend being invested.

The power of compounding
When you invest over the long term, your earnings generate their own earnings. This snowball effect is called compounding returns. For example, if you’d invested USD 10,000 in the MSCI USA Total Return Index in 1980 – and left it to grow uninterrupted – in 2024, it would have been worth USD 1,050,000 (assuming all dividends were reinvested). That’s an annualised return of 11.1%.

Risks of timing the market
Trying to time the market is a notoriously difficult thing to do. Most professionals don’t think they can do it. And by trying to avoid the market’s worst days, you risk missing out on the best days – and that could be the biggest detriment to your returns.

Take a look at the following data from the S&P 500 from 1991 to mid-2024:

As you see, if you were fully invested during this period, you would have earned 11% annually. But missing the 30 best days would have cut your earnings in half.

Time is the great equaliser
The urge to time the market stems from our fear of buying at the high – it could all be downhill from there, right?  Instead, we want to be the investor who got in at the bottom and raked in the profits. But how realistic is that?

The data below shows annualised returns in US equities from various starting years to mid-2024, based on the best and worst entries.

In most of these years, the difference between perfect timing (best entry) and buying at the worst point possible is only around 1% annualised. Of course, there are years with more dramatic swings, where timing does play a bigger role, but over 30 years, the difference between best and worst entries is just 0.3% annualised (i.e. the difference between the best and worst entries in1994).

This suggests that investing consistently over many years, with multiple entry points along the way, works to reduce timing-related risks. Some entries will be good, some not so good, but over time, the differences will be small – and not worth worrying about.

Put time on your side with AutoInvest
Now that you know that time is your friend when investing, how can you make it simpler to invest for the long-term? With AutoInvest, Saxo’s automated monthly savings plan, you can start building your wealth with recurring monthly investments in your choice of ETFs. With AutoInvest there’s no more timing the market, or having to choose individual stocks.

AutoInvest keeps costs low too, with zero commissions to buy, no monthly fees and no minimum deposit, so you can invest as much or as little as you like.