Market timing is the strategy of making buying or selling decisions of financial assets by attempting to predict future market price movements. It is the stuff of crystal ball gazing. But how good is your crystal ball?
The impact of missing just a few of the stock market’s best days (being ‘out of the market’) can be profound, as this look at a hypothetical investment in the shares that make up the American S&P 500 Index of leading companies shows.
- A hypothetical $1,000 turns into $138,908 from 1970 through the end of August 2019. Miss the S&P 500’s five best days and that’s $90,171.
- Miss the 25 best days and the return dwindles to $32,763. There’s no proven way to time the market—targeting the best days or moving to the side-lines to avoid the worst—so history argues for staying put through good times and bad.
Investing for the long term helps to ensure that you’re in the position to capture what the market has to offer.