Introduction
Let’s face it: the stock market can sometimes feel like an unpredictable roller coaster ride. You may find yourself thinking, “Should I just wait on the sidelines – or go to cash – until things look better?” Historically, however, data suggests that staying invested and weathering the ups and downs often leads to stronger long-term results.
Below, we’ll explore some reasons why “time in the market” tends to outperform “timing the market.”
1. Missing the Best Days Can Be Costly
One of the most eye-opening statistics for would-be market timers is what happens if you’re out of the market during those rare, dramatic rebound days. For example, over a 20-year span of the S&P 500, a fully invested strategy might have averaged an annual return of about 8–9%.[1] But if you missed only the 10 best days in that same period, your returns could drop by nearly half.[2] If you missed more “best days” than that (say, the 20 best days), you cut returns even further—often to a fraction of what you could have earned by simply staying put.
Why does it matter?
Those “best days” frequently show up right after large market drops. The reason why the days are so often missed is…nobody knows the exact day that the turnaround is going to happen…until it has already happened. When investors pull out to avoid losses, they may miss these powerful rebound days—a double whammy that can severely limit long-term portfolio growth.
2. Markets Have Historically Recovered from Major Downturns
From the 2008 financial crisis, after which many major indices doubled—or more—over the ensuing years,[3] to the swift decline (and robust rebound) in early 2020,[4] history shows us that while short-term dips can be painful, the market’s long-term trajectory often trends upward. If you sit out in turbulent times, you risk missing a significant portion of the recovery that can occur before headlines turn positive again.
3. Consistent Investing vs. Emotional Reactions
Instead of attempting to pick the perfect moments to exit and re-enter the market—an approach that’s notoriously difficult to get right—consider strategies like dollar-cost averaging. By investing a set amount on a regular schedule, you effectively reduce emotional decision-making and buy more shares when prices are low.
Bottom line:
No one consistently and accurately predicts every peak and trough over the long term. Staying in the market ensures you’re present for its best days—days that can disproportionately drive long-term growth.
4. Staying Focused on Your Goals
It’s easy to get caught up in daily market movements or sensational news stories. But ultimately, a well-structured, diversified portfolio based on your personal goals and risk tolerance can help you weather short-term volatility. By keeping your eye on what truly matters—your long-range financial objectives—you’re less likely to make hasty decisions that could undermine your future returns.
Final Thoughts
Stepping in and out of the market when volatility strikes might feel tempting, but the risk of missing those critical “best days” is high. In contrast, staying invested—with a thoughtful, balanced strategy—can offer the consistency needed to ride out the storms and benefit from eventual rebounds.
If you have questions or want to discuss your investment plan in more depth, please reach out. Ultimately, it’s about aligning your strategy with your personal goals, time horizon, and comfort level.
Disclaimer
This blog post is for informational purposes only and does not constitute investment, tax, or legal advice. All investments involve risk, including possible loss of principal. Past performance does not guarantee future results. Consult a qualified financial professional to address your specific circumstances.
Footnotes
[1] J.P. Morgan Asset Management, Guide to the Markets, 2022. Data illustrating average annual returns for the S&P 500 over a 20-year period.
[2] T. Rowe Price, “Missing the Best Days,” 2021. Research showing the impact of missing top-performing days in the stock market.
[3] Yahoo! Finance. S&P 500 historical data, January 2009–December 2019. The index more than doubled from its lows following the 2008 crisis.
[4] Bloomberg. Market data from Q1 to Q4 of 2020, highlighting the swift decline due to the global pandemic and subsequent rebound