"Time in, not timing, is the key to investment success!" - David Bojan, H Capital Founder.
What the chart above shows
This chart plots the investment returns achieved by the US “S&P 500” stock market
index since year 2000 compared with the returns if one were to exclude the best
performing 10, 20 and 30 days during that period.
In other words, had you tried to time the market, a seemingly straightforward process of buying low and selling high, making a success of that would have been very challenging. Investors often find themselves selling prematurely, and as a result, miss out on significant market rallies.
The temptation to invest only when the market appears favourable can be
strong, yet staying invested through market fluctuations has historically generated
competitive returns, especially over extended periods.
The chart above illustrates how mistiming the market can erode potential returns. Even missing a handful of key days, can substantially impact an investor’s overall return.
During the period, the S&P 500 appreciated by 245%. But if an investor had missed the top 10 days during that time, their return would have plummeted to a mere 59%. The
consequences escalate further, with a 40% loss for those who missed the top 30
days.
Why is this important?
Many of the stock market’s best days coincide with periods of heightened volatility
or bear markets. The timing of those best days often aligns closely with market
downturns, illustrating the adage that the market takes the stairs up but the
escalator down!
During market downturns, panic (emotional) selling can lead to missed opportunities for significant gains during subsequent market recoveries.
As evidenced in 2020, one of the best days occurred immediately after one of the
worst, emphasising the importance of removing emotion and employing patience in
navigating market turbulence.
In essence, attempting to avoid market downturns may inadvertently result in missing out on crucial upward movements. Thus, we emphasise time in the market rather than attempting to time the market, recognising that enduring market noise and volatility is often the price to pay for long-term returns.