Time in the Market
Chart Content: Annualized S&P 500 Index returns over the past 25 years compared to annualized S&P 500 Index returns over the same timeframe when missing the top 10, 20, 30, and 40 days in the market
Chart Significance: Missing the best performing days in the market over the past 25 years resulted in a weaker annualized return compared to staying invested throughout the entire period. For example, an investor who remained fully invested in the S&P 500 over the past 25 years would have realized an annualized return of 9.32% while an investor who missed the top 10 days would have realized an annualized return of only 4.51%. On a $100,000 initial investment, this equates to a market value reduction of over $600,000 during the 25-year span.
Potential Forward-Looking Implications: The U.S. stock market has been resilient throughout its history as stocks have consistently recovered from short-term corrections and bear markets to move higher over longer time horizons. Trying to predict the best time to buy and sell may cause investors to realize subpar returns, reducing the likelihood of achieving long-term goals. Market timing is exacerbated by the fact that a majority of the market’s best days tend to occur in periods of economic distress distress. Simply put, time in the market is more important than timing the market. History shows that investors who acknowledge the fact that downturns are an inevitable part of investing, look beyond short-term volatility, and remain invested, have a greater chance of achieving long-term success.
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The Best Days Come in Bear Markets
The best and worst days of the market tend to occur together, making it nearly impossible to time well. In fact, over the past 25 years, when observing the best 30 days of the Standard & Poor’s (S&P) 500 Index, a total of 24 of them occurred during economic contractions and bear markets. Those 24 days were collectively evident in the depths of the dotcom bubble of the early 2000s, the global financial crisis of 2008, and the COVID-19 pandemic crisis of 2020. The importance of understanding such a fact may play a critical role to an investor’s long-term success. The reality is that investors often feel emotionally compelled to reduce, or even exit, their equity market participation during times of economic stress. The objective ability to look beyond tumultuous times, however, can have a measurable impact to an investor’s long-term success. As an example, an investor that remained fully invested in the S&P 500 over the past 25 years would have realized an annualized return of 9.32%. Such a return would have turned a $100,000 initial investment into more than $925,000. If that same investor would have missed the 30 best days in that same 25 year span, they would have earned a negative 1.26% annualized return. Simply put, market participants have a greater chance of achieving long-term success by staying fully invested in times of market volatility and in times of economic distress. For those that have an ability to increase their equity market participation during times of volatility, the chances of added success may be further amplified.
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Investment advice offered through CX Institutional, a registered investment advisor.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. The economic forecasts set forth in the presentation may not develop as predicted.
All data is sourced from Bloomberg, through the release of monthly figures from the U.S. Bureau of Labor Statistics or from the Federal Reserve and any of its affiliated regional locations.