My personal stock market investing mantra has always gone like this: “The best time to invest was yesterday; the second best time is today; the worst time is tomorrow.”  I decided to take check that and see how accurate it might be, so I built a simple Microsoft Excel^® spreadsheet to take a back of the envelope look.

I looked at a few scenarios over a 30-year investment period, each of which consisted of a single $10,000 investment done in Year 1 that then grew at 3%/yr for 29 (or 30) of those years.  In one of those scenarios, the investment simply grew at those 3%/yr.  In the other scenarios, the investment would spike upward by 20% in the first year, in the last year, or in the middle of the sequence; or the investment would spike downward by 20% in those three selected years.  It’s important to note, too, that since I’m comparing these three scenarios with each other to look at the underlying principle, it doesn’t matter whether those 3% are nominal, real, or compared to this or that stock market index.

The bottom line is this: the 20% spike up or down makes a significant difference in the final value of the investment.  That final value becomes $24,300 if the investment grows without the spike, rises to $28,300 with a spike up, and falls to $18,900 with the spike down.

That seems to make my mantra useless, until we look at the effect of when the spike occurs.  That difference is zero.  It doesn’t matter whether the spike occurs at the start of the investing period, at the end, or in the middle; the end values are all the same: $28,300 with a spike up and $18,900 with the spike down.

My bottom line: unless I can time the market with considerable specificity, I stick with my mantra and simply enjoy the spike or ride it out.

My spreadsheet, which unrolls this year by year, is here.

Note: use this at your own risk.  I’m not a licensed investment (or any other type of) advice giver, nor do I play one on the radio.