Whether driven by panic and fear or the thrill of riding the highs and narrowly escaping the lows, it can be alluring to attempt to try to time the market. Fear sells and panic and anxiety can place an urgency on the price tag pushing investors to make moves now without thought or discipline. Today, possibly more than ever in history, investors are being inundated with propaganda to get out of – or back into – the market. From escalating trade tensions and tariffs to fear over a recession and inflation, many investors’ sentiment is marred with uncertainty.
But history – and data – warn of the potential dangers of timing the market. And the cost of acting on impulses can be far greater than investors may realize. As Mark Matson, Founder and CEO of Matson Money says, “I don’t know if history repeats itself, but it sure rhymes.”
Missing the Market’s Best Days Can Be Devastating
Take for example, the chart above. Say you invested $10,000 in the S&P 500 and stayed invested for 20 years. By the end of that period, your investment could have grown to more than $71,750. However, if you missed just the 10 best days in the market during that same time, your investment would have grown to only $32,871, less than half.
Miss 20 of those top-performing days, and you’re looking at just $19,723. And if you were out of the market for 30 of the best days? That $10,000 shrinks to about $12,947.
The lesson? Those top days can account for the lion’s share of long-term returns. And because all the knowable and predictable information is already available, only unknowable and unpredictable information is available moving forward, markets remain impossible to predict.
Why Market Timing Is an Imprudent Strategy
Attempting to time the market is more than just a gamble – it’s a strategy without foundation. No one – not professional money managers, not economists, not financial influencers, can consistently and accurately predict when to get in and out of the market.
Yet despite its largely poor track record, market timing remains alluring because it appeals to our desire for control and certainty. But when it comes to investing, discipline and adhering to a prudent and globally diversified investing strategy – not predictions – is what can potentially yield favorable long-term results.
Stay the Course: The Case for Academic Investing
Rather than trying to time the market, we are committed to helping investors build globally diversified portfolios, grounded in empirically tested academic investing principles, so that they can have confidence in their long-term investing strategy and can stay invested over a lifetime. This approach doesn’t rely on market forecasts or emotional reactions; instead, it’s rooted in discipline, patience, and commitment to a long-term strategy.
Investing based on academic principles—rather than headlines or hunches – can give investors great opportunity to participate in the full power of the market over time. This doesn’t guarantee a profit, nor does it shield against downturns. But it does give investors an opportunity to avoid the potentially costly mistakes that come from reactionary decisions.
A Final Word: Think Long-Term, Act Long-Term
The market will rise. The market will fall. And it will likely do so many times throughout your investing lifetime. But the most dangerous move you may make isn’t riding the waves—it’s jumping ship.
Remember: it’s not about timing the market. It’s about time in the market.
Stick to your plan. Trust the strategy. And let time—and prudent investing—do its work.
DISCLOSURES:
This content is based on the views, opinions, beliefs, or viewpoints of Matson Money, Inc. This content is not to be considered investment advice and is not to be relied upon as the basis for entering into any transaction or advisory relationship or making any investment decision.
All of Matson Money’s advisory services are marketed almost exclusively by either Solicitors or Co-Advisors. Both Co-Advisors and Solicitors are independent contractors, not employees or agents of Matson.
Other financial organizations may analyze investments and take a different approach to investing than that of Matson Money. All investing involves risks and costs. No investment strategy (including asset allocation and diversification strategies) can ensure peace of mind, guarantee profit, or protect against loss.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS
Three Factor Model
Fama, Eugene F. and Kenneth R. French. “The Cross-Section of Expected Stock Returns,” Journal of Finance, 47, June 1992.
Efficient Market Hypothesis
Eugene F. Fama, “Random Walks in Stock Market Prices,” Financial Analysts Journal, September/October 1965.
Modern Portfolio Theory
Markowitz, Harry. Portfolio Selection: Efficient Diversification of Investments. New York. Wiley. 1959. Print.
This content is for educational purposes only. Investors cannot invest in a market index directly, and the performance of an index does not represent any actual transactions. The performance of an index does not include the deduction of various fees and expenses which would lower returns. Advisory fees charged to Matson Money clients, whether directly or indirectly through a mutual fund, are described in Matson Money’s Form ADV Part 2A and Form CRS, available at www.matsonmoney.com. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
Data prior to the launch date of the index is hypothetical back-tested data (i.e. calculations of how the index might have performed over that time period had the index existed). There are frequently material differences between hypothetical back-tested performance and actual results. Past performance — whether actual or back-tested — is no indication or guarantee of future performance. Hypothetical back-tested performance is used by Matson for educational purposes only and is intended only to demonstrate how the market has historically behaved. Matson does not configure, alter, or otherwise use hypothetical back-tested information in an attempt to artificially enhance or impair performance. Matson only uses hypothetical performance information that is relevant to the financial situation and investment objectives of the recipient as communicated to Matson.
- S&P 500 Index.
The S&P 500® Index is widely recognized as representative of the equity market in general. The S&P 500 Index is an unmanaged, capitalization-weighted index designed to measure the performance of the broad U.S. economy through changes in the aggregate market value of 500 stocks representing all major industries.
