This hypothetical experiment was conducted by the well-known US investor Charles Schwab to demonstrate how important the ability to choose the right moment is for investment results. The experiment offers a different perspective on investing: maybe it’s worth being a bit lazy here? However, such laziness has one important condition – you first need to actually start investing.
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This is especially relevant considering the attitude of Lithuanian residents towards starting to invest. A survey conducted on behalf of SEB shows that 61% of residents identify the right time to start investing as the moment when they already earn enough and have free money. Another 24% are waiting for a large sum of money, 18% would invest after receiving an inheritance. Only a fifth, 20%, think it is worth starting after getting the first job.
This shows that we still tend to postpone investing until the right moment. However, the perfect moment may take a long time to come, and during that time one of the most important factors of long-term investing – time – is lost. Investing does not necessarily have to start with a large amount. It is much more important to start with what we can allocate today and gradually develop a consistent habit.
Which strategy proved successful in Ch. Schwab’s experiment?
Let’s return to the experiment. Its essence is simple: five hypothetical investors invest $2,000 every year for 20 years, but each chooses a different strategy.
One has an almost superhuman ability to invest on the very best day each year, another invests the entire amount at once at the beginning of the year, the third divides the amount into regular monthly investments. The fourth has the most thankless task – investing at the market peak every year. The fifth stays completely aside and keeps the money uninvested.
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The results reveal an important investment lesson. The investor who perfectly timed the market bottom (i.e., hypothetically bought securities at the lowest price) would have accumulated $186,077 after 20 years. However, the one who invested immediately at the beginning of the year would have had $170,555, and the one who invested regularly every month – $166,591. Even the investor who invested at the worst moment every year would have accumulated $151,343. Meanwhile, the person who simply waited for the right opportunity for all 20 years and did not invest at all would have been left with $47,357.
Laziness can become a good strategy
Of course, this experiment is hypothetical and does not guarantee the same returns in the future. Its value lies not in the specific amounts but in illustrating the principle: trying to constantly hit the lowest price requires not only knowledge but also the ability to accurately predict the future. And doing this consistently is practically impossible.
Therefore, for a long-term investor, it may be beneficial to act a bit more boringly. To set a strategy, choose your risk tolerance, diversify investments, establish a regular investment rhythm, and not try to react to every market movement. Sometimes in finance, fewer decisions mean not less responsibility but more discipline.
So, in a certain sense, one can be lazy when investing. But the laziness should not be in investing itself, but in trying to outsmart the market. The most important thing is not to hit the best day and lowest price every time, but to stay in the market long enough.
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