Every investor's nightmare-buying at a market high and selling at a low. However, this perceived blunder has been given a curious research spin. Named after a character from the 1994 sitcom Seinfeld, the 'Costanza strategy' of investing at market highs, considered a poor instinct, has surprising outcomes when put to the test.
Analysts studied what the effects would be if an investor bought at annual stock market highs, including the all-time peaks. The findings revealed that even these worst-timed investments didn't yield much difference compared to buying at market lows over long-term periods. Hence, even investors who make such seemingly poor timed investments could still achieve favorable outcomes.
History documents some intriguing observations. An analysis of data from 1958 to now suggests that even investors who bought the S&P 500-representing 500 of America's most significant companies-during the yearly peaks and held onto them for two decades could earn almost 7% per annum. The figure is interestingly comparable to the roughly 8% by calculated-risk investors who bought when the market was low.
Investors can adopt two approaches: purchasing lump sum at the annual high or low and holding for 20 years, or consistently buying every year at the high versus the low, aka the Costanza strategy. In both instances, the discrepancy between good and bad timing decreases the longer you're invested.
Success in securing a good retirement isn't based on timing but compounded returns and duration of investment. Over a span of twenty years, market turbulence can deflate into the upward trajectory of the market. Your investment grows, and so do the returns on these gains-a snowball effect that makes the timing mistakes of early investments virtually undetectable.
Investing at the market's worst possible times yielded unexpected results. The tested 'Costanza strategy' of such seemingly ill-timed investments has historically yielded profitable long-term gains if substantial investment attempts were made in the stock market. The gamechanger is not about buying at highs or lows-it's about long-term investing, allowing compounded returns to work their magic. Whether you invest all at once or over time, the determinant here is patience, rather than luck.