The stock market looks a bit wobbly. After reaching a new record high on Oct. 6, the S&P 500 index (SNPINDEX: ^GSPC) has declined by about 2.5% since then (as of this writing).
On the one hand, a 2.5% drop in the S&P 500 can be unnerving to some investors. It might be a sign of economic trouble ahead. What if the stock market plunges even further into a 10% correction or a 20% bear market?
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On the other hand, many investors might see a 2.5% price decline in the S&P 500 as a sign that “stocks are on sale” and that it’s time to buy more shares of S&P 500 exchange-traded funds (ETFs). This is called “buying the dip” — investing more money in the stock market when the overall market has “dipped” to lower levels.
Here’s the thing: If you can patiently leave your stock portfolio alone for the next several years, asking if it’s time to “buy the dip” is the wrong question. For consistent, long-term investors, there is rarely a bad time to invest.
Here’s why patient, consistent, “boring” long-term investing is often more lucrative than waiting for the perfect moment to swoop in and “buy the dip.”
Long-term S&P 500 investing: Rarely a “bad time” to buy
The S&P 500 has delivered average annual returns of 9.98% since 1928. That’s a remarkably long-term track record of wealth-building returns despite the massive stock market crashes, global wars, and short-term economic crises along the way. The stock market tends to keep chugging along. Companies make money and pass on some of those earnings to shareholders. Stocks go up.
The past few years for the S&P 500 have been even better than that long-term 98-year average. In the past 10 years, the Vanguard S&P 500 ETF (NYSEMKT: VOO) has delivered annualized returns of 15.3%. In the 16 years since the fund’s inception, it has delivered annualized returns of 14.94%.
If you just bought shares of VOO and held onto them for five, 10, or 16 years, you would’ve earned significant returns. Even if you thought you were investing at a “bad time” or the “best time” on any given day.
Time in the market beats “timing the market”
When the S&P 500 is down by a few percent in a month, it’s easy to think that “maybe I’ll just wait to invest until stocks go down even more. Then I’ll buy more shares at a lower price.” But this is called market timing, and it doesn’t work.
