The timing of investments is always a dilemma for the individual investor.

Looking backward, it is relatively easy to find comprehensive analyses showing the best days, weeks, months, and years to have invested in the U.S. stock market, as well as the major world stock markets. For the U.S., some of these analyses are based on monthly data extending back into the 1800s.

However, looking forward, the probability of timing those most opportune investment opportunities is essentially zero.

Timing proponents, on the other hand, cite “evidence” that the market can be successfully timed by following popular clichés, like “sell in May and go away.” The day of the week, day of the month, and even election-year cycles have also been investigated to help investors time their purchases. These approaches tend to give opportune periods for investments, but not specific points within the periods.

In this short study, I took a look at specific dates of investments in the S&P; 500 index to see which times are most opportune and also achievable by individual investors.

The good news is that there actually is a relatively opportune time—one that is very easy to follow and in fact may even be a rule of thumb you already follow—simply invest at the beginning of each year.

Method

Using a database supplied by Ibbotson Associates, courtesy of Morgan Stanley Research, of the monthly total return of the S&P; 500 back to 1982, I determined the results of annual and monthly investments in the S&P; 500.

From 1982 through year-end 2004, I determined the accumulations of investing $1,200 annually in the S&P; 500 index on the first investment day of each year. Then I determined the accumulations you would have received if you had the bad luck to invest on the date of the market high for each year (the worst date of the year to invest), and the accumulations you would have received if you had the foresight to invest on the date of the market low for each year (the best date).

I also determined the accumulations of investing $1,200 annually on the low day of the same month each year—in other words, the market low each January of every year, each February of every year, each March, etc.

Further, to gauge the effect of dollar cost averaging, I determined the accumulations of investing $100 on the first investment day and the last investment day of each month of each year.

Results

The results are summarized and shown in Tables 1 and 2.

Table 1 shows the results of investing $1,200 on the low, high and first day of each year from 1982 through 2004.

The difference in the accumulations between the first day of the year and the S&P; 500 low of the year is $9,651 ($160,777 – $151,126)—not a tremendously big difference over a 23-year period.

Table 1 also shows the accumulations of investing $1,200 on the low day of the same month each year. Using this timing method, the greatest accumulation came when investments were made on the low day of January each year. However, the accumulation of this opportune investment exceeded the accumulation of the first day of the year investment approach by only $2,956 ($154,082 – $151,126) over the entire 23-year period.

Investments in February each year exceeded accumulations of the first day of the year investments by only $25.

Table 2 shows the accumulations of investing $100 on the first or last day of each month of the year (to equal the $1,200 annual amount). Not surprisingly, the differences in the 23-year accumulations between the first day or last day of the month are negligible but these accumulations fell short of the annual amount on the first day of the each year by $10,064 ($151,126 – $141,062).

Conclusion

It is virtually impossible to time one’s investments on the low day of any one year and even less possible to time one’s investments on the low day of every year.

The same is true for trying to time the market on the low day of any month and the low day of the same month over a period of several years.

To state that the best day of the year to invest is at the market low is simply rhetoric.

However, investing on the first investment day of the year is very easy. And this analysis shows that investing $1,200 on the first investment day of every year in the S&P; 500 produced an accumulation that is very close to (within $9,700 or 6%) investing on the best investment day of each year.

For those who would find it difficult to invest a single amount once each year: By investing $100 on the first day of every month in the S&P; 500, the investments accumulated to within 12% of the accumulation that timing the best day of the year to invest would yield.

There may be other days each year that would generate accumulations closer to the optimum, but those days are unknown and an investor cannot get too much closer than investing on day one of each year.

The future may not repeat this, or any past, performance, but it is only the past that we can hope to be a window to the future.

Robert Muksian, Ph.D., is a professor of mathematics at Bryant University in Smithfield, Rhode Island.