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Volatility may tempt many investors to try to time the market, but history tells us that market timing is virtually impossible to do successfully.

Timing the Market

When markets experience a significant pullback like we saw in October, investors may consider pulling their money out of the market to avoid further losses. However, history has shown that timing these moves is virtually impossible, since you have to be right twice (when to get out and when to get back in).

Historically, missing just a few of the best days in the market can have a significant negative impact on returns. An investment of $10,000 in the S&P 500 in 1998 would have seen an annualized return of 7.2% over the following 20 years, reaching a final value of over $40,000 at the end of 2017. However, an investor that missed the top 40 days over that period (approximately 1.6% of the total days) would have actually seen negative returns, with a final value of less than $6,000. Additionally, many of the 40 best days came within two weeks of one of the 40 worst days, making it very difficult to time. By going to the sidelines, investors are not only missing potential rebounds, but all of the compounding growth on that money going forward.

Sharp movements in equity markets can create angst for investors, but it’s important not to let short-term emotions drive investment decisions. Investors should maintain a long-term, disciplined investment strategy and avoid the temptation to attempt to time the market. 

Past performance does not guarantee future results. All investments include risk and have the potential for loss as well as gain.

Data sources for peer group comparisons, returns, and standard statistical data are provided by the sources referenced and are based on data obtained from recognized statistical services or other sources believed to be reliable. However, some or all of the information has not been verified prior to the analysis, and we do not make any representations as to its accuracy or completeness. Any analysis nonfactual in nature constitutes only current opinions, which are subject to change. Benchmarks or indices are included for information purposes only to reflect the current market environment; no index is a directly tradable investment. There may be instances when consultant opinions regarding any fundamental or quantitative analysis may not agree.

Plante Moran Financial Advisors (PMFA) publishes this update to convey general information about market conditions and not for the purpose of providing investment advice. Investment in any of the companies or sectors mentioned herein may not be appropriate for you. You should consult a representative from PMFA for investment advice regarding your own situation.