One of the greatest risks investors face is not necessarily investing during market declines — it is being out of the market when the recovery begins. Historically, some of the strongest stock market gains have occurred during periods of heightened uncertainty, often immediately following sharp selloffs. Because those powerful recovery days are impossible to predict in advance, investors who attempt to time the market risk missing a meaningful portion of long-term returns.
The chart below illustrates this point by comparing the S&P 500’s actual annual return (blue bars) with the hypothetical return had an investor missed the 10 best trading days during each calendar year (red bars). The differences are striking. Years that produced double-digit gains often would have generated flat or negative returns if those few exceptional trading sessions had been missed. Conversely, years that were already challenging became significantly worse.
The message is simple: time in the market is typically far more valuable than timing the market. Remaining invested through periods of volatility allows investors to participate in both the inevitable downturns and the powerful rebounds that have historically followed them.
While this message sounds simple and has been time-tested for decades, it takes discipline and fortitude to stick with it.
Advisory Services offered through Nepsis, Inc., An SEC Registered Investment Advisor.