Can we time SIPs?
Time is an illusion - Einstein in Theoretical Physics
Time Timing is an illusion - Einstein in Stock Markets*
We will straight away jump into what this article will try to answer.
Can a retail investor, one who receives salary every month, time the markets to achieve better returns while doing his Systematic Investment Plan?
The retail salaried person only does Index investing in Sensex. Assume that on Christmas in 1979 he decided to start an SIP in BSE Sensex with an ETF or an Index fund with no expense and no tracking error. Hypothetically assume these instruments existed since then (even if there is an expense we can reduce the returns appropriately). His strategy was Buy and Hold forever.
No we cannot time our SIPs.
With a lot of effort (which we will not discuss in this post) we can just scrape ahead of the index but the gains are not substantial enough in this long period of 40 years. At least in my opinion. Let us look at some dirty calculations.
Below is the CAGR of all these 6 'strategies'. Even if we were the unluckiest people in the Indian stock market and chose the highest index values every month straight from 1980 to 2020 end we would only have a CAGR below the closing monthly prices of index by 7 bps. That is it. The probability of being that unlucky is approximately 1 / 19^491. Vice versa being the luckiest person gets a benefit of only 12 bps of over the index. Probability remains similar.