While the daily volatility in the stock market is both unprecedented and jarring, we continue to believe the smartest move for investors is to stay put. Why? Throughout history, more money has been lost attempting to mitigate damage in market downturns, than in the downturns themselves.
This is because the best days in the stock market are usually in close proximity to the worst (when investors feel compelled to sell). Today is a good example. After a brutal stretch of trading days, stocks are up nearly 8% today (that’s a whole year’s worth of gains in a single day).
It’s impossible to predict when these huge positive days will occur, but the surest way to benefit is to just stay put. Timing the market puts you in danger of missing out.
The chart below shows that days like today (when returns come in bunches) are the rule, not the exception. For each decade, the blue bar shows the return in stocks. The yellow bar shows the return in stocks, excluding the ten best days in the market over that decade. That’s just one day per year. But the results are astounding. Over the last decade (2010-2019), stay the course investors earned twice as much as investors that missed the ten best days. In other words, just one day a year equaled half your returns over an entire decade.
During a crisis, it seems like the bad news will never end. However, at some point, the tide will turn and it’s important to remain invested when that happens.
As always, our team is here to answer questions, so please don’t hesitate to contact us!