When it comes to investing, one of the biggest mistakes people make is trying to time the market—buying low and selling high based on short-term movements, or worse yet, selling based on fears of a potential future decline. While this may sound like a good strategy, especially in these times of market volatility, history and data tell a different story. The real key to successful investing is time in the market, not timing the market.
The Cost of Missing the Best Days
Market volatility can be unnerving, but pulling out of the market during downturns often means missing the best recovery days. Studies show that missing just a handful of the best-performing days in the market can significantly impact long-term returns. Here’s the data to illustrate it:
•If you had invested $10,000 in the S&P 500 from 2003 to 2023 and stayed fully invested, your investment would have grown to approximately $74,063. Keep in mind that during this twenty-year period, the markets experienced two dramatic drops: the Great Recession and COVID.
•However, missing just the 10 best days during that period would have reduced your portfolio’s value to $35,236.
•Missing the 30 best days? Your investment would be worth just $14,514—barely any gain over two decades.
Why Staying Invested Matters
Best Days Could Follow the Worst Days – Some of the best market days occur shortly after major declines. Investors who panic and sell during downturns often miss the swift rebounds that may follow.
Compounding Works Best Over Time – The longer you stay invested, the more time your money has to compound, generating exponential growth.
Predicting the Market is Nearly Impossible – Even professionals struggle to accurately time the market. Long-term investing allows you to benefit from overall market growth without the stress of trying to guess short-term moves. Remember to accurately time the market you have to be right twice: once when you sell and again when you buy back in.
The Bottom Line
Instead of trying to time market highs and lows, focus on a disciplined, long-term investment strategy. Regular contributions and staying invested through market fluctuations can help you maximize your returns over time.
So, the best advice is to stay invested and stay focused so you can stay on track.
Did You Know?
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