Regular investing—often implemented through workplace plans or brokerage contributions—has historically been a straightforward way for long-term investors to reduce the pressure of market timing. The central mechanism is dollar-cost averaging, which automatically adjusts how much investors buy as prices move, smoothing the impact of volatility.
While markets periodically correct and bear phases can test discipline, the long-term outcome for investors who keep adding money is often superior to strategies that pause during downturns and re-enter later.
Key takeaways
- Price move: During major selloffs, broad indexes such as the S&P 500 have fallen sharply from prior peaks—for example, declining more than 50% from the October 2007 high to the March 2009 low.
- Catalyst: The key driver behind improved outcomes is systematic buying—allocating new funds regularly regardless of whether stocks are “expensive” or “cheap.”
- Key implication: Continuing contributions through corrections can lower the average cost of shares over time, potentially improving long-run returns.
- Behavior matters: Investors often do the most damage by abandoning contributions during declines; staying invested changes the payoff profile.
How systematic investing improves outcomes
Dollar-cost averaging refers to putting money into the market on a recurring schedule regardless of price levels. When stock prices rise, each installment typically buys fewer shares; when prices fall, the same installment buys more shares. Over extended periods, this pattern can lower an investor’s overall average purchase price compared with approaches that attempt to time market entries.
The report also emphasized that successful market timing is difficult even for professional managers, making consistent contributions a practical alternative. For many investors, automated monthly contributions in retirement accounts such as 401(k) plans can help remove day-to-day decision-making—investors simply keep contributing without needing to predict short-term moves.
Downturns are the stress test
Corrections and bear markets are often when long-term plans face the toughest behavioral challenge. The article pointed to the importance of maintaining discipline during these periods, noting that many investors stop investing when markets weaken, which can materially alter long-run results.
To illustrate the issue, it cited the S&P 500’s drawdown from its October 2007 peak to its March 2009 trough, where the index fell more than 50%. The point was not just how long it took to recover, but how systematic buying during the decline could have changed outcomes for investors who kept adding along the way.
The report contrasted two scenarios: an investor who held the index through the decline but did not add further, versus an investor who continued purchasing shares from the October 2007 period through the March 2013 timeframe when the index reached a new all-time high. It argued that the latter approach can convert falling prices into a steady stream of lower-cost share purchases, leading to positive returns on each incremental buy—even if the broader market takes years to reach new highs.
In that context, it referenced Warren Buffett’s well-known “be greedy when others are fearful” framing to underscore that downturns can create conditions where new contributions buy more shares at lower prices.
What to watch when markets get rough
The article’s practical message centered on investor behavior: the strategy’s effectiveness depends on whether contributions continue during volatility. If investors maintain regular, systematic payments to their accounts when markets are acting poorly, they may be positioning themselves for long-term wealth accumulation rather than waiting for a market “signal” to re-enter.
That discipline is especially relevant because the downside of pausing contributions is not only the missed opportunity to buy more shares during weakness, but also the compounding effect of reduced investing during a period when prices are often at their lowest levels.
Bottom line for long-term investors
Systematic investing is designed to remove the need to perfectly forecast market moves. By continuing to invest through downturns—rather than abandoning plans—investors can potentially reduce average purchase costs and improve the odds that their portfolio outcomes align with long-term market growth.
Investors considering how to implement the approach next should focus on maintaining a consistent contribution schedule across market cycles, including through corrections and bear phases. Key upcoming considerations for long-term investors typically include upcoming economic data releases and major central-bank events, which can affect volatility and market direction, even though the investment process itself remains the same.
