CWG Insight Series: The Cost of Trying to Time the Market

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We should all know that long-term investing is a winning strategy. If you’re unsure of that statement, the ARTICLE we wrote in January should help provide context.  

We should also know that buying low and selling high is a winning strategy, making selling low and buying high a losing strategy.  

Even though we know these things, it’s human nature to get nervous in down markets and begin to lose your resolve. Recently, we have fielded numerous calls asking if we should get out of the stock market with volatility high as the Fed battles inflation and potentially lands us in a recession.  

Trying to time the market is incredibly difficult, and if you get it wrong, it can cost you big time. Take a look at the chart below for confirmation. If you invested $1,000 in the S&P 500 at the start of 1990, after 30 years, your investment would have grown to $20,451. Now take a look at what happens to your return if you miss the best performing days during that period. If you’re not in the market those days, you lose out on a tremendous amount of return. We are talking roughly 11,000 days over that 30-year period, so the best days really are a needle in a haystack. If you are out of the market and trying to time perfectly when to get in, good luck!  

We don’t know when the recovery will start, but it always does, history shows us that. While we have changed the make up of our portfolio holdings, we have not gotten out of the market. We need to be there when the best days happen so we can win in the long run.    

Past performance is no guarantee of future results. Indices are not available for direct investment. Their performance does not reflect the expenses associated with the management of an actual portfolio.

In US dollars. For illustrative purposes. The missed best day(s) examples assume that the hypothetical portfolio fully divested its holdings at the end of the day before the missed best day(s), held cash for the missed best day(s), and reinvested the entire portfolio in the S&P 500 Index at the end of the missed best day(s). Annualized returns for the missed best day(s) were calculated by substituting actual returns for the missed best day(s) with zero. S&P data © 2021 S&P Dow Jones Indices LLC, a division of S&P Global. All rights reserved.        Investing risks include loss of principal and fluctuating value. There is no guarantee an investment strategy will be successful.

Data and chart provided by Dimensional Fund Advisors LP, an investment advisor registered with the Securities and Exchange Commission.                  

Nick Kolbenschlag

Chief Executive Officer & Co-Founder