Investing: It is all about timing

Let's assume you made a lump sum investment in the S and P 500 ten years ago. How did you do? Not very good. Your investment lost 43 percent or an annualized return of minus 5.4%.

Now let's assume you made the same lump sum investment in September 2000. Not too shabby, in fact, fantastic. A gross gain of 255% or 14% annualized.

Let's say you invested your lump sum back in 1982 and for some crazy reason you got out in 2000. You went through the Savings and Loan debacle, a stock market crash (1987), a recession (1991), the Long Term Capital debacle (1997)and ended up in 2000 with an annualized return of 13.53%.

Remember how the Bush administration was trying to sell the idea of putting Social Security funds in stocks. Good or bad idea?

Here is something I learned a long time ago. It is time to buy stocks when nobody wants stocks. And, it is time to sell stocks when the guy shining your shoes starts giving you stock tips. Or, when he tells you he owns three $500,000 homes in Wellington, Florida.

Stocks will likely go lower from here. You won't ever catch the absolute bottom if you wait around for it. But, if you start buying stocks before the bottom and actually buy some near the bottom before it turns up you will probably do very well. This is good time to be working hard to max out your 401k.

Source in part

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(chart prices adjusted for inflation, does not include dividend reinvestment).