Early Retirement
Were We Lucky in Our Investment Timing?
One book reviewer on Amazon suggested that investment timing was crucial to
our success in retiring early
-- that we started investing in the 1990’s when the
stock market was doing exceptionally well and that the results we attained
weren't necessarily repeatable by others under today’s market conditions. Is
this true? Did we benefit from exceptional market timing?

In a word, no.
And here’s why:

The “Roaring 90’s” were without question an amazing decade for investing.
Just take a look at these annualized returns from 1995 to 1999 to get an idea:
No one could complain about these five years of investment returns! And if we
finished our investing in the 90’s then we would certainly agree our timing
was exceptional. However, since we
started our investing in the 90’s, the
reverse is almost true.

The whole point of investing is to buy low and sell high. But we were buying
high – then higher and higher. That was exactly what we didn’t want to do.

We saw our market timing as more of a hindrance than a help. We would have
preferred to have invested a decade earlier when markets were undervalued.
That way we would already have owned plenty of shares at reasonable
valuations by the time the 90’s came rolling around.

As novice investors we had very little money riding on the market during the
years of extraordinary double-digit gains. Take a look at the chart below, which
shows our annual investment amounts and cumulative nest egg from 1992 to
As the chart shows, we were only able to invest very small amounts at first. In
time we started investing larger amounts, but even by 1997 our grand total was
still less than $58,000, so the crazy gains being made in the stock market didn’t
help us as much as one might imagine

ere's the thing: a 20% return on a $50,000 nest egg is $10,000, but a 20%
return on a $500,000 nest egg is $100,000. Thus, having big market returns
towards the end of your investment window, when your nest egg is big
ger, is
much more desirable than having them towards the beginning. By the end of
the Roaring 90’s, after eight years of investing, we had barely broken the
$100,000 mark.

In truth, we did our best investing during the bear market of 2000 to 2002. The
dot-com bubble finally burst and the S&P 500 was down -9%, -12%, and -22%
in 2000, 2001, and 2002. But throughout that time we were buying
more shares
with our money and we knew that in the long run our strategy of consistent
investing would pay off.

And it did. We saw big returns in the following four years. From 2003 to 2006
the S&P 500 gained 29%, 11%, 5%, and 16%, respectively. Our cumulative
nest egg grew rapidly under these conditions. Now the markets were working
for us even as we continued channeling more money into them.

Over the entire 15-year period from 1992 to 2006 (when we retired), the S&P
500 returned 10.66% based on compound annual growth rates. But from 1997
(when we finally had $50,000 or more working for us) to 2006 the return was
8.41%. The long-term historical average is 9%, so our annualized returns were
solid but n
ot exceptional.

Considering we retired right into the Great Recession in 2007, our timing
doesn't seem quite so ideal!

But our point isn't to suggest that our timing was bad but rather that
ANY time
is a good time to invest. Even with stocks soaring in the 1990’s, it was still a

good time to invest because over the long term stocks nearly always trend

It’s s
ometimes tempting to think that others had it easier, that market conditions
were better before, and so on, but the truth is, you have just as good a chance
of retiring early under today’s market conditions as we did under ours. It’s not
always easy to remember, but recessions and downturns are actually good
news during your primary investing years. So our recommendation would be to
forget about timing or luck and just get out there and invest.