written by
Douglas Finley

What Happens When You Fail at Market Timing

Financial Education & News 1 min read

The impact of missing just a few of the market’s best days can be profound. How to understand market timing is explained below. Take a look at the following example of a hypothetical investment in the stocks that make up the S&P 500 Index.

A hypothetical $1,000 turns into $138,908 from 1970 through the end of August 2019.

  • Miss the S&P 500’s five best days and that’s $90,171
  • Miss the 25 best days and the return dwindles to $32,763

There’s no proven way to time the market—targeting the best days or moving to the sidelines to avoid the worst. History argues for staying put through good times and bad.

Investing for the long term helps to ensure that you’re in the position to capture what the market has to offer.

Good Market Timing Means Long-term Investing

Fail at Market Timing
Capturing What the Market has to Offer

Assumptions For This Hypothetical Portfolio

The missed best day(s) examples assume the following:

  • the hypothetical portfolio fully divested its holdings at the end of the day before the missed best day(s)
  • held cash for the missed best day(s) and reinvested the entire portfolio in the S&P 500 at the end of the missed best day(s)

Annualized returns for the missed best day(s) were calculated by substituting actual returns for the missed best day(s) with zero.

  • Performance data for January 1970-August 2008 provided by CRSP
  • Performance data for September 2008-August 2019 provided by Bloomberg
  • S&P data provided by Standard & Poor's Index Services Group
  • Indices are not available for direct investment

Past performance is no guarantee of future results.

markets market timing investment long-term