The first day of the month has been particularly rewarding to investors over the last decade. CNBC reports on a S&P report that shows an investor who has been invested only on the first day of the each month since the year 2000 has outperformed a buy and hold portfolio by 68%:
“But a very simplistic form of market-timing has worked for the past 11 years. It involves owning the Standard & Poor’s 500 stocks, but only for the first day of every month.
An S&P report recently found that someone who invested $10,000 in the S&P 500 on Dec. 31, 1999, and left the money there until Dec. 1, 2010, would have just $8,209. An investor who was in the market only on the first day of every month over the same time — for example, buying at the close on Dec. 31 and selling at the close of the first trading day in January — would have $13,816.
That’s nearly 70 percent more than buying and holding the whole time. S&P didn’t include reinvesting dividends in either scenario because of the complications of figuring out which companies paid dividends on the first trading day of the month for 11 years. But even if you include all possible dividends for the buy-and-holders, the first-day trade strategy came out 33 percentage points ahead.”
As I type, S&P futures are trading higher by 4 points as we head into the first trading day of 2011. Looks like the trend is set to continue….
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.