Timing the Market
Timing the Market? Proceed with Caution
During times of market volatility, the “Timing the Market” strategy invariably gains traction.
The vision is grand – sell your investments just before a dip, and buy back in time to reap the benefits of a market uptick.
Sounds perfect, right?
Those preaching “timing the market” typically ignore the negative effect of missing the good days, in their efforts to avoid the bad ones.
Back in 2014, JP Morgan set out to quantify the impact of missing the best days in the market. The premise was simple, how would missing the 10 best days of the market impact an individual invested in the S&P 500 from 1993 to 2013?
Short answer – missing the good days cripples your Rate of Return.
By their records, a person invested in the S&P 500 during this entire 20 year window would’ve averaged a 9.2% annualized return. However, if that same investor tried to time the market and happened to miss the 10 best days during that same time-frame, their annualized return would have been just 5.4%.
For perspective, that amounts to a $26,000 difference if the initial investment was $10,000!
So, is timing the market a good idea?
Sure – if you can see the future. On the other-hand, if you can’t see the future (i.e. you’ve been stuck in traffic at least once this week), you should steer clear of this approach.
Don’t try to time the market. Missing the good days is more damning than you would imagine.
This is not investment advice. Rather, a discussion that reflects my opinion on long-term investment strategies.
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