Wouldn’t it be great if we could predict the best and worst days of the stock market? Because that is not case, your emotions can become one of the biggest threats to your portfolio. More money may be lost due to fear and greed (how we respond) than all of the financial economic and geopolitical events combined. It’s not the events themselves but our response to them that cause the greatest harm.
The most dramatic example of the folly of market timing is the chart on the left. Missing the 30 best days over that 25-year span dropped the investment return towards the average rate of inflation over that period.
- The best days in the stock market tended to cluster and are easily missed.
- Six of the top 30 price return days for US stocks since 1996 have happened during the COVID outbreak.
- 80% of the best days in the market over the past 25 years happened during the tech wreck, the financial crisis, and during the COVID outbreak.
With all that being said, I would like to leave you with an analogy that I heard many years ago, and that is “What is the worst thing you can do during a rollercoaster ride?... Jump off.” So as we ride out this volatile market, just hang on until it’s over.
As always, if you have any questions about recent market behavior or just want to chat about your portfolio, Cassandra Dorn, CFP is happy to help.