Hello all! I’m kinda new to investing and I prefer less risky choices to I decided to invest on ETFs and mostly on the S&P 500 ETF.
I had an idea and I’m really interesting in finding out your opinions or if this has been tried in the past by others.
How would it work in the long run if we invest a standard amount of money on the ETF but only on days(or moment of the day) that its price is negative compared to the price the market closed last day?
Would it work better if the investment of the same standard amount of money is daily no matter the price?
I want you to know that I’ve made a pie consisting of 5 ETFS on my practice account to really check on this strategy I thought of and so far I see the daily investment has given a little more in return compared to the investment only on negative days for all 5 ETFs in the pie. It’s only been running for a month on the practice account so it’s pretty early.
The opinions or knowledge of more experienced users are always welcome.
Thank you all in advance for your comments.
Assuming the underlying trend is up then you’re better investing every day, rather than every negative day.
By investing every negative days you are missing out on the growth in between.
For example; If it goes -1%, +2%, +1%, +1%, -1%. Then you’ve invested on day 5 when the market is ‘down 1%’ but missed out on 4% growth since you last invested.
“Time in the market beats timing the market”
…unless of course you can time the market perfectly, in which case timing the market works wonders. But you’ll never know when that perfect time is.
I like to think about it this way:
Imagine there are 10 days a year that the stock market does really good performance, when those days come you want to be as fully invested as possible otherwise stats show you will have very much reduced return over years. (surprisingly bad)
When will those 10 days come? Well no-one knows, so by holding back money and timing you might just miss them, and once you miss them there is no going back so the best solution is to just get your money in as soon as you can to give yourself best chance to catch them.
Few articles out there about this, here is one
Edit: could be as low as 1-2 days a year rather than 10 but same principles apply.