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Here’s the real cost of timing the market

Here's the Real Cost of Timing the Market

On days like today, do you find yourself saying, “I wish I bought in yesterday?” Or on days like yesterday do you say, “I really wish I had not just put money to work?”  There’s a real cost to timing the market, and the reality is that if you are someone holding a portfolio of securities, the facts show that you are better off riding it out than giving up on your investments and going to cash.  In a recent research report, LPL Financial Senior Market Strategist Ryan Detrick stated: 

“Although market timing is very alluring to investors, especially after the past few weeks, the reality is timing things incorrectly can set you back significantlyIn fact, if you started in 1990 and missed the best day of the year each year for the S&P 500, your annual return was nearly cut in half.” 

Below is a chart, also from LPL. It shows the annualized return for the S&P 500 from 1990 to 2019.  7.7%–It’s the blue bar all the way on the left. That’s for 30 years. Now, over that same time periodif you missed THE ONE SINGLE BEST DAY OF EACH YEAR, that 7.7% return drops to only 3.9%. (See the second bar from the left.)  How about missing TWO of the best days of each year? You would have been up less than 1% a year. (See the third bar from the left…Okay, I can let you take it from here, right?)  Why stop there?    Miss the best threeand youre at -1.8% annualized return.  Best five? Boom: -6.8% annualized. ANNUALIZED!  Fine, I’ll do it…I’ll actually mention the most extreme.  If you missed the best 20 days of each year, you’d be down 27% annualized. 

Market Timing S&P 500 Index Annualized Growth Rate

If you are a long-term investor and you don’t need cash out of your portfolio right now, play the odds and just leave your portfolio working for you. The Dow was up almost 11.4% today…miss a day like today and it hurts.  Having some cash as a hedge right now is okay, but when you are all cash and miss one or two big days, you can really impair the performance of your portfolio.  As they used to yell up at parachutists properly oriented into the wind and coming in for a landing at Airborne School, “Hold whatcha got Airborne!” 

Keep looking forward, 


Military Parachute

What’s Next?

Hope from China, truth about stimulus, and why cash is the ultimate hedge

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Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Monument Wealth Management), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. All indexes referenced are unmanaged and cannot be invested into directly. The economic forecasts set forth may not develop as predicted. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from Monument Wealth Management. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Monument Wealth Management is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of Monument Wealth Management’s current written disclosure statement discussing our advisory services and fees is available for review upon request.

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David B. Armstrong, CFA

President & Co-Founder

Dave got into the industry when he discovered his passion for finance in his mid-20’s. He’s a combat veteran and served as an officer in the United States Marines Corps on both active duty and in the reserves, retiring at the rank of Lieutenant Colonel. While serving on active duty, Dave was unable to spend money on deployments, so he became a self-taught investor. Along with a few bucks cash as a bouncer, his investing performance grew to be good....

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