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I ran across an interesting analysis I thought I would share. I've heard this general advice before, but here is some actual data to support it:
Let's say you invested $1,000 in the S&P 500 in 1970. What would it be worth by the end of 2013?
If you let it ride -- that is, invested & never touched it, it would be worth $77,804 by the end of 2013.
If you missed for the single best day during that time period, your money would only have grown to $69,771.
If you missed the 5 best days, your money would only have grown to $50,588.
If you missed the 15 best days, it would only have grown to $29,378.
If you missed the 25 best days, it would only have grown to $18,533.
By comparison, if you had invested (and reinvested) in 1 month T-Bills, your money would only have grown to $9,192.
We all know, intellectually, that consistently timing the market is extremely difficult (if, indeed, it is even possible). We all also have personal guesses as to what the market will be doing over the coming month, year, 5 years, etc. The lesson seems to be not to act on those personal guesses - just stay invested in the market. Don't panic. Don't sell out of the market.
Every time I see the old "if you missed the best x days in the market" argument, my reply is: What if you also avoided the x WORST days? It's quite possible (or even likely) that avoiding the worst days would offset missing the best days.
You can't use the "missing the best days" argument without also considering avoiding the worst days, yet no one does whenever this is brought up.
BTW, none of the above is to be taken as an endorsement of market timing by your average investor. Just pointing out a flaw in an argument.
Every time I see the old "if you missed the best x days in the market" argument, my reply is: What if you also avoided the x WORST days? It's quite possible (or even likely) that avoiding the worst days would offset missing the best days.
You can't use the "missing the best days" argument without also considering avoiding the worst days, yet no one does whenever this is brought up.
BTW, none of the above is to be taken as an endorsement of market timing by your average investor. Just pointing out a flaw in an argument.
If you're market-timing, it's just as likely that you'll miss bad days as good days. Therefore you can't use the "missing the good days" argument against market-timing without also taking into account missing the bad days. Yet most do. That is my point.
If you're market-timing, it's just as likely that you'll miss bad days as good days. Therefore you can't use the "missing the good days" argument against market-timing without also taking into account missing the bad days. Yet most do. That is my point.
The problem with market timing is that you have to be right twice
"The market's worst days have had a larger effect on returns than the market's best days."
And...
"Capturing positive performance may not be enough to overcome losses, depending on your investment timetable..."
And...again...I clearly said this wasn't about endorsing market timing, but rather about the flaw in the "best days" argument.
True but page 3 does cover the problem with attempted timing in that a lot of the big down days and up daycare in close proximity making the timing unlikely. Missing the worst down days are very unlikely IMO if you are actively moving in and out
True but page 3 does cover the problem with attempted timing in that a lot of the big down days and up daycare in close proximity making the timing unlikely. Missing the worst down days are very unlikely IMO if you are actively moving in and out
The fact that the worst days and best days tend to occur in close proximity just reinforces my point some more: IF you're missing out on the best days by engaging in market timing--like the old argument implies you will--it's also likely that you'll miss out on the worst days, ESPECIALLY if they occur close together.
I never suggested that anyone should try to avoid the worst days or that it can be easily done. I'm simply saying that, IF you're trying to time the market--even if you're using a Magic 8 Ball to do so--you're just as likely to miss the worst days as the best ones. And that, again, makes the whole "best days" argument bogus.
I agree that market timing, for most people, is difficult to do and will generally not pay off, for many reasons. But missing the few best days of the market is not one of those reasons. That is my only point here.
True but page 3 does cover the problem with attempted timing in that a lot of the big down days and up daycare in close proximity making the timing unlikely. Missing the worst down days are very unlikely IMO if you are actively moving in and out
That argument can be turned on its head - Missing the best up days are very unlikely IMO if you are actively moving in and out.
Ultimately the problem with timing is you lose due to commissions or management fees more than anything.
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