It's often said that timing is everything. But how good is your share market investment timing?

It's an interesting question, and perhaps the Australian Securities Exchange trading data from October is a good indicator of just how difficult timing markets can actually be.

October wasn't a particularly extraordinary trading month by any means. Over the 21 trading days in October there were 12 sessions when the Australian share market finished higher than the previous day, and nine when it finished lower.

Could you have accurately predicted which direction the market would have taken on any day?

If you'd invested into the broad Australian share market at the start of trading on Friday 1 October, by the end of that day the value of your initial investment would have fallen by 1.7 per cent.

The share market regained 1.29 per cent on Monday 4 October, but over the next two trading days it fell close to 1 per cent.

It then rose for two consecutive days before falling again, this time for three days in a row.

So, what does the day-to-day trading data from early October actually show?

For one thing, it demonstrates that markets consistently rise and fall.

But, more importantly, it shows that trying to predict the best time to buy into markets is no easy feat. In fact, it's virtually impossible.

Investment timing, the easy way

There's another form of investment timing though, and it has nothing to do with trying to time market movements.

On the contrary, it's all to do with choosing your own timing to make regular investments.

The advantage is that you don't have to think about your investment timing, because it's done automatically.

Vanguard has just launched Auto Invest, an automated regular investment feature for managed funds on its Personal Investor platform, to offer a simple automated process for investors seeking to invest regularly.

Here's how it works. You choose a regular amount of money (from $200) that you want to invest into one or a range of Vanguard managed funds, and then decide how often you want to invest.

You can choose to invest every fortnight, in line with your pay cycle, or every month or quarter.

Investing the same amount of money at set intervals is known as dollar-cost averaging.

That means you're averaging out the cost of your investments through incremental investing – regardless of whether market prices are up or down on any given day.

The easiest way to illustrate a dollar-cost averaging strategy is to show how investment balances can build up over time, using a combination of regular contributions, the reinvestment of distributions and compounding returns over time.

The chart below is based on the actual Australian share market return and follows someone who started out investing $10,000 in 1980 and who continued making set monthly contributions.

Over the last 40 years, the Australian share market has produced an average annual return of 10.6 per cent.

Keep in mind that over this long period of time markets moved up and down on a daily basis.

But, by just sticking to a regular contributions strategy using dollar-cost averaging, you can easily see what the outcomes would have been.

The power of regular contributions

Illustrating the growth of investments with regular contributions over 40 years.

Notes: Calculations are based on the S&P All Ordinaries Index for the period 1/1/1980 to 30/6/2021. Calculations based on monthly data. Logarithmic scales are used for this illustration. All distributions are reinvested.
Source: Morningstar Data and Vanguard. 
Vanguard Investments Australia Ltd (ABN 72 072 881 086 / AFS Licence 227263) is the product issuer. We have not taken your circumstances into account when preparing the information so it may not be applicable to your circumstances. You should consider your circumstances and our Product Disclosure Statements ("PDSs") before making any investment decision. You can access our PDSs at vanguard.com.au or by calling 1300 655 101. Past performance is not an indication of future performance. This publication was prepared in good faith and we accept no liability for any errors or omissions.

If you'd stuck to a strategy of investing $250 a month into Australian shares and reinvesting your income distributions, irrespective of market movements, your initial $10,000 would have grown to $2.7 million.

Had you invested $500 a month, your balance would be $4.5 million.

Those returns are despite the impacts of the October 1987 Crash, the 2000 dot-com Crash, the 2008 Global Financial Crisis, and the recent COVID Crash in early 2020.

Staying the course

Successful investing revolves around having a well-planned and diversified strategy that's aligned to your specific goals, and the discipline and resolve to stay the course, even during the most volatile investment times.

Long-term returns data proves that time in the market will deliver consistent growth over longer periods despite short-term volatility.

In fact, what happens on markets from day-to-day, or even month to month, is largely inconsequential when you look at the longer-term returns picture.

Making additional contributions and harnessing the power of compounding can make an enormous difference over time.

And, make no mistake, the earlier you start investing the more money you're likely to have to enjoy the things you want to do when you do eventually stop work.

Vanguard Australia