I have such wonderful clients.
Many of them send me items of interest. Recently, my client JC, a former J.P. Morgan
employee, sent me a gold mine: the J.P. Morgan Guide to Retirement 2024. It is 53 pages chock full of interesting data. You can see the whole thing HERE.
But the page that really grabbed my attention was page 47 – “Impact of being out of the Market”. You can see page 47 in its entirety HERE.
It features this graph:
Let’s walk through it.
This graph shows the growth over 20 years of a hypothetical $10,000 investment made in the S&P 500 Index on January 1st, 2004.
The S&P 500 Index is a group of 500 of the largest companies in the United States. When you buy a fund tracking this index you own a small amount of each company’s stock. This index includes companies you’ve certainly heard of and likely interact with on a regular basis such as Amazon, Google, Apple, and Facebook.
If you invested $10,000 in the index on 1/1/2004 and reinvested all dividends how much would you have twenty years later on 12/29/2023? The first bar on the graph shows the answer: $63,637. Your money grew over 6X. This is a 9.7% annualized return. This does not take into account any fees or taxes.
The ride to $63K+ was bumpy.
In fact the ride looks something like this:
This period of time includes the Financial Crisis of 2008/2009 when the index dropped almost 50% from its peak at the time.
During the early days of COVID in 2020, the index declined ≈34%.
As recently as 2022 the index declined ≈27%.
But the fascinating thing about the first chart is the rest of the graph’s bars.
The 2nd bar shows what happened to your $10,000 if you missed the 10 best days in the market over that period of time. Just 10 days out of ≈5,000 total trading days!
In that case, your return plummets to $29,154. (5.5% annualized). A difference of ≈$34,000! Huge difference.
It gets increasingly grim the more of the best days you miss. By the time you miss the 40 best days your return is negative. Your $10,000 has shrunk to $7,898.
So when do these best wealth creating days occur? The inset box on the graph has the answer:
The majority of the best days occur within two weeks of the worst days!
If you attempt to avoid the worst days by getting out of the market, you will almost certainly miss the best days. Missing the best days massively impacts your wealth accumulation. The market cannot be timed. You must be present to win.
Save. Invest. Repeat. Tune out the Noise.
