Which of the following do you have more control over?
- Timing the market’s ups and downs
- Staying Invested and Staying Disciplined
You missed 1 day out of over 11,000, so what?
Above is a graphic that shows how reacting to market conditions (and/or attempting to time the market’s ups and downs) would change your return as an investor. This example uses the Performance in the S&P 500 between 1970-2015 (that’s over 11,000 market days). The annualized compound return for the entire period was 10.27%. If you had missed the single best day in the market during that time, your annualized compound return would be 10.01%. In dollar terms, if you had invested $1,000 at the beginning of the period and received 10.27% annual return, you would end with $89,678. If you had missed the best single day you would have missed out on $9,308 because your end result would be $80,370. As a long term investor, that is quite severe a penalty for missing one day – out of 46 years.
Let’s go a step further and say you missed the best 25 days. Your annualized compound return would be 6.87%; or $21,224 if you had invested $1,000 at the beginning of the period. That is a difference of $68,454 because you missed 25 days out of over 11,000.
If You Are an Investor, Then Be an Investor.
As investors, we want to focus on things that we can control. What is out of your control? Predicting the market’s ups and downs, and letting our emotions determine the timing or frequency of our investments. What is in your control? Settling on an appropriate mix of investments, investing in them, and staying true to your original objectives – knowing that there will be ups and downs along the way.
So instead of answering our original question, we’ll let you be the judge!
Attribution and Disclaimer: Graphic in US dollars. Indices are not available for direct investment. Their performance does not reflect the expenses associated with the management of an actual portfolio. Past performance is not a guarantee of future results. Performance data for January 1970–August 2008 provided by CRSP; performance data for September 2008–December 2015 provided by Bloomberg. S&P data provided by Standard & Poor’s Index Services Group. US bonds and bills data © Stocks, Bonds, Bills, and Inflation Yearbook™, Ibbotson Associates, Chicago (annually updated work by Roger G. Ibbotson and Rex A. Sinquefield).
Woodstone Financial, LLC is a fee-only financial planning and investment management firm located in Asheville, North Carolina. Contact us to learn more about our services.