Timing the Market Is More Difficult Than It Looks!

Timing the market seems simple enough…but there is clear evidence that market timing is difficult…By contrast, staying invested through highs and lows has generated competitive returns, especially over longer periods.

This post is an abridged version of the original article originally posted on Advisor Channel.

The graphic below shows how trying to time the market can take a bite out of your portfolio value, using 20 years of data from JP Morgan.

The Pitfalls of Timing the Market

…[Failing to time] the market by even a few days can significantly affect an investor’s returns. The following scenarios compare the total returns of a $10,000 investment in the S&P 500 between January 1, 2003 and December 30, 2022. Specifically, it highlights the impact of missing the best days in the market compared to sticking to a long-term investment plan.

	Portfolio Value	Annual Return (2003-2022)
Invested All Days	$64,844	+9.8%
Missed 10 Best Days	$29,708	+5.6%
Missed 20 Best Days	$17,826	+2.9%
Missed 30 Best Days	$11,701	+0.8%
Missed 40 Best Days	$8,048	-1.1%
Missed 50 Best Days	$5,746	-2.7%
Missed 60 Best Days	$4,205	-4.2%

As we can see in the above table, the original investment grew over sixfold if an investor was fully invested for all days.

• If an investor were to simply miss the 10 best days in the market, they would have shed over 50% of their end portfolio value. The investor would finish with a portfolio of only $29,708, compared to $64,844 if they had just stayed put.
• Making matters worse, by missing 60 of the best days, they would have lost a striking 93% in value compared to what the portfolio would be worth if they had simply stayed invested.
• Overall, an investor would have seen almost 10% in average annual returns using a buy-and-hold strategy. Average annual returns entered negative territory once they missed the 40 best days over the time frame.

…Not only does timing the market take considerable skill, it involves temperament, and a consistent track record. If there were bulletproof signals for timing the market, they would be used by everyone.

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