Does market timing work? Here’s why you’re better off staying invested
Stocks
May 25, 2021
Does market timing work? If you’re trying to time market crashes by getting in and out before they happen, you might want to rethink your strategy.
According to research by Capital Group, staying invested in the market — through the ups and downs — gives the investor a greater chance of coming out ahead.
Between 2008-2018, a $1,000 investment would have turned into $2,775 but…
- Missing the 10 best days in those 10 years would have decreased your returns by 38% to $1,772.
- Missing the best 30 days would have turned your investment into $918 — losing you money.
Research by Renaissance Capital shows similar results in the IPO market. In 2020, the return in the IPO market was 107.9%.
- Missing the top 5 performing days of 2020 would have reduced the returns to 45.5%.
- Missing the top 10 days would have reduced the returns to 14.1%.
People often stop investing when the market is down and return when the market has bounced back.
The takeaway: Rather than timing the market, investors will often be better off staying in the market through different market cycles.
