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Is Market Timing a Good Idea? Thumbnail

Is Market Timing a Good Idea?


To get the highest returns, investors often attempt to time the market. And, it seems every market analyst sounds a bell to alert viewers of an opportunity. While some investors claim timing the market is possible, we believe overwhelming evidence suggests otherwise. Historically, the best days in the market are frequently followed by the worst; therefore, trying to time the market can cause investors to miss the ‘best days.’ While an investor may have avoided the worst days, missing the best days results in significantly lower returns.

Illustrating the point is Dalbar, Inc.’s annual Investor Behavior Study. In their most recent study, they concluded the average investor in 2018 ended the year with a loss of -9.42 percent while the S&P 500 Index only retreated -4.38 percent.[1]

The chart shows the returns of a $10,000 investment invested in the S&P 500 index between 1999 and 2018. Over these two decades, the investment would have earned a 5.62 percent return if it remained fully invested. However, excluding the 10 best days the investment would have only earned a 2.01 percent return. 

Between 1999 and 2018, six of the market’s 10 best days occurred within two weeks of the market’s 10 worst days. An investor trying to time the market who avoided the 10 worst days would have also missed the 10 best days, and likely have received a lower return on their investment.[2]

It’s important to remember timing the market requires two correct predictions – when to get out and when to re-enter. For investors who wanted to avoid the market downturn in 2008 but missed the subsequent 10-plus year bull market, this is a painful reminder. Market timing is almost impossible and attempting to do so frequently can wreak havoc on asset allocations. As fiduciaries, our goal at Legacy One is to work closely with clients to ensure long-term goals are kept in focus over short-term market moves. Please reach out to your Legacy One Advisor to discuss and review portfolio updates.

[1] Dalbar, Inc. (2019, March 25). “Average Investor blown away by market turmoil in 2018.” [Press Release] Retrieved from https://www.dalbar.com/Portals/dalbar/Cache/News/PressReleases/QAIBPressRelease_2019.pdf

[2] J.P. Morgan Asset Management. 2019 Guide to Retirement

This report is intended for the exclusive use of clients or prospective clients of Legacy One Financial Advisors, L.L.C. Content is privileged and confidential. Any dissemination or distribution is strictly prohibited. Information has been obtained from a variety of sources which are believed to be accurate though not guaranteed. Past performance does not indicate future performance. This paper does not represent a specific investment recommendation. Please consult with your advisor, attorney and accountant, as appropriate, regarding specific advice.