Insights + Resources

Time In The Market Versus Timing The Market

Mar 24, 2020

market timing
Timing things incorrectly can really set you back

The incredible market volatility continues, with the S&P 500 Index now in one of its worst bear markets ever, along the way making the quickest move from an all-time high to down 30% at only 22 days. What is a long-term investor to do?

“Although market timing is very alluring to investors, especially after the past few weeks, the reality is timing things incorrectly can set you back significantly,” explained LPL Financial Senior Market Strategist Ryan Detrick. “In fact, if you started in 1990 and missed the best day of the year each year for the S&P 500, your annual return was nearly cut in half.”

As shown in the LPL Chart of the Day, the annualized return for the S&P 500 from 1990 to 2019 was 7.7%. Yet, if all you missed was the best day of the year, that return dropped to only 3.9%. Miss the best two days of each year, and you were up less than 1% a year. Taking it to the extreme, if you missed the best 20 days of each year, you’d be down 27% per year.

View expanded chart.

No one can consistently pick the best or worst days of the year, so this is why it can be so dangerous for investors to miss time in the market by trying to time the market. If you miss one or two big days, compounded over time, this can greatly impact your portfolio.

For more of our thoughts on the current market environment, please reach out to a trusted financial professional today.

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