The old adage of "a picture says 1,000 words" rings true with the infographic above from Visual Capitalist (https://www.visualcapitalist.com/chart-timing-the-market/) This is one of my new favorite websites specializing in telling stories through graphs and visuals.
Market volatility has returned in 2023 with the markets trying to decipher the conflicting messages of inflation, strong consumer spending, high market valuations, the wars in Ukraine and Israel/Palestine, and many other data points.
Taking a step back, we thought it would be a good time to remember what history has shown us when it comes to timing the markets, as uncertainty in the markets can cause the temptation to sell your investments and wait for better times to invest. The chart above examines the potential growth of $10,000 if it matched the returns of the S&P500 (500 biggest companies in the US) over a 20-year time period between (Jan 2003 and Dec 2022). It then looks at the potential shortfall of this growth, if the best 10, 20, 30, 40, 50, and 60 market days of market growth were missed. The difference between staying invested over that time and missing top-performing days in a portfolio is quite profound.
One other aspect of this illustration that we find especially interesting is its listing of the top 10 trading days for the S&P500 over that time period.
Look At The Dates!
Three of the dates were at the height of uncertainty with the COVID pandemic. In March/April 2020 the country was in lockdown with no end in sight, yet there were strong market performances those days.
Seven of the dates are in the midst of the 2008-2009 great recession. This is when markets were extremely volatile and didn’t really bottom out until March 2009.
In Summary
While it often feels like we have a complete picture of the information from the news and our personal feelings on the markets, the data doesn't lie. Missing out on the top-performing days can have a drastic effect on a portfolio's returns and those dates cannot be predicted in advance.