It’s difficult to predict the best days in the markets, and the cost of missing them can be high.
When you try to time the market, you have to be right twice, exiting at the right time and buying back in at the right time. That’s why it is so difficult to do consistently. The impact of missing just a few of the market’s best days can be profound, as the image above shows. A hypothetical $1,000 investment in the S&P 500 turns into $138,908 from 1970 through the end of August 2019. Miss the S&P 500s five best days and that’s $90,171. Miss the 25 best days and the return goes all the way down to $32,763.
Given how difficult timing the markets truly is, it’s easy to see that the risk of failing to time the market isn’t worth it in the end. The cost of being wrong is simply too great. Staying disciplined to your long-term strategy helps to ensure you’re always in position to capture what the market has to offer.
As the old saying goes: “I don’t know if the next 20% move will be up or down, but I do know where the next 100% move will be”.