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10 Days: How Missing the Best Market Days Destroys Returns

Laptop,, Calendar and Books

"Only liars manage to always be out during bad times and in during good times."

- Bernard Baruch

10 days. That's all you need to miss for your investments to be cut in half.

Markets are wildly unpredictable. They can swing 15% in either direction on any given day. Market timers try to be invested in the good days and be absent for the bad days (like a terrible friend). This strategy sounds simple enough but is practically impossible to implement. Why? Because no one can predict the future.

Timing the market is hard but mistiming the market is easy. There's only a handful of great market days and they drive the majority of returns. Not being invested on these days severely handicaps your performance.

J.P Morgan's 2019 Guide to Retirement analyzed the 20-year return of the S&P 500 from Jan 4 1999 - Dec 31 2018. Annualized returns were 5.62%. If an investor invested $10K and had the discipline to not tinker with their investments, their portfolio would have almost tripled over this period to ~$30K.

Now, if instead the investor was an active trader trying to time the market, they expose themselves to the risk of missing the best market days. Missing just the 10 best days would mean their investments would have only grown to $15K. 

The more days missed, the worst the performance:

Best Days Missed
Annual Performance
None (Fully Invested)
10 Days
20 Days
30 Days
40 Days
50 Days
60 Days

Trying to weave in-and-out of the markets at the right time more resembles gambling rather than investing. It's stressful with a low likelihood of success. As demonstrated above, successful investing can be as simple as buying and holding. A buy-and-hold strategy means you'll have to endure the bad days but it also means you'll enjoy all the best ones.

Accept the fact there'll always be periodic market downturns and that trying to predict them will just makes things worst. Over long periods, markets historically rise, there'll be light at the end of the tunnel. You just need to hold tight, patience is key.

“The stock market is designed to transfer money from the active to the patient.” 

- Warren Buffet


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