Market volatility, wide swings in its value, is often distressing to investors. The temptation to get out can be strong.
But it isn’t market timing that matters – it is time in the market!
Read on to learn more!
Michelle Morris, CFP®, EA
BRIO Financial Planning
If you invested $10,000 in the S&P 500 index (an index mutual fund owning the 500 largest stocks in the US) on January 2, 1996 and held for 20 years until December 31, 2015 you would have $48,230. This is an 8.18% annualized return.
This assumes you stayed fully invested for the entire 20 years, or a little over 5,000 trading days.
If you missed the 10 best days, you would have only $24,070. Your return reduced by almost $25,000!
If you missed the 30 best days, your return is NEGATIVE! Missing the 30 best days out of 5,000 would result in $9,908.
This graphic from J.P. Morgan Guide to Retirement 2016 Edition tells the whole story.**
Currently the top holdings in the S&P 500 are Apple, Google, Microsoft, Exxon Mobil, and Amazon. Companies you’ve heard of. Odds are good you use some of their products/services.
Twenty years may seem like a long time, but even my oldest client probably has a 20 year investing horizon left. My youngest client probably has close to 70!
When do these best days happen? 6 of the 10 best days occurred within two weeks of the 10 worst days. Volatility can be tough to stomach – but getting out of the market due to emotions is a losing strategy.
The important thing is to have a plan! Devise an asset allocation (% of portfolio devoted to stocks vs. bonds/cash) that is appropriate for YOU and your circumstances. And stick with it.
Save. Invest. Repeat. Don’t miss the best days.
**I do not have any affiliation with J.P. Morgan