Why You Should Never Wait to Invest, by the Numbers

Investing in stocks is one of the most proven ways to grow your money. The stock market, as represented by the S&P 500, has an average return of about 10% per year. That's the long-term return, though. It can be volatile from year to year.

Because of the market's ups and downs, some investors try to wait for the right time to invest. It makes sense in theory -- the best strategy is to buy low and sell high, after all.

In reality, this is a huge mistake. It's impossible to reliably time the market, and studies have found that trying to do it could cost you hundreds of thousands of dollars.

The cost of waiting to invest

The problem with trying to time the market is that no one can accurately predict when stock prices will increase or decrease. That includes the professionals. The average professionally managed hedge fund consistently gets lower returns than the S&P 500 (an index of 500 of the largest publicly traded companies). And if you wait to invest, you could miss out on the market's best days in terms of returns. That's much more impactful than many people realize.

To demonstrate, let's look at the 40-year period from 1980 through 2020. The table below shows how a hypothetical $10,000 investment would've grown during that time depending on how many of the best days you missed.

By missing just the 10 best days during those 40 years, you lose over $540,000. If you miss the 50 best days, then instead of having nearly $1 million, you'd end up with only $70,000.

As you can see, waiting to invest is a costly mistake. If you haven't started investing yet, there's no time like the present. Robinhood is one of the top brokers for beginners, and right now, it even offers an IRA match for new clients. WARNING SCL [brokerage slug=robinhood field=apply_url] does not generate a link. Anchor tag will not render in production.Click here to learn more and open an account today.

Better ways to invest your money

Timing the market would be perfect if there was a way to do it consistently. But there isn't, and if you try, you're playing a dangerous game. So, how should you invest your money? There are two popular strategies to choose from:

• Lump-sum investing: Invest a large amount of money all at once. For example, if you want to invest $10,000, you'd invest the full amount.
• Dollar-cost averaging: Invest a fixed amount of money on a set schedule. For example, you could invest $500 every month on the 15th.

Of the two, lump-sum investing has a slight edge in terms of returns. A Vanguard study found that lump-sum investing outperforms dollar-cost averaging 68% of the time. But they're both effective strategies, and you can't go wrong with either one.

You might find that the best approach is a combination of the two. If you've been saving up money to invest, you could put it into the market as a lump sum. It's also good to make investing a habit, and you could do that by dollar-cost averaging. Decide on an amount you can afford, and invest every month -- or every paycheck, whichever you prefer. Many brokerage accounts and retirement accounts let you automate your contributions to make this even easier.

Don't miss out on the biggest returns

We only know what the market's best days are after the fact. If you're not already invested when they happen, you miss out. That's why it's so important to make investing part of your regular routine.

If you're not sure where to invest, index funds are a simple option with low fees. You could go with an S&P 500 index fund or a total stock market index fund. Investing in either of those would mean that your portfolio largely follows the performance of the stock market as a whole.

Most stock brokers now offer online platforms with commissions as low as $0, making investing easier and cheaper than ever. To find one and start building wealth, check out our list of the best online stock brokers here.