The Investment Scientist

How Not To Miss The Best Market Days

Posted on: February 28, 2022

Last Thursday when the news reported that Russia had just launched an invasion of Ukraine, the market opened down nearly 800 points. A client called to ask if we should move to safety, but I was able to persuade him to stay put. I did that without knowing that the stock market would end the day slightly positive, followed by the BEST rally since 2020 on Friday. Such is the unpredictable nature of the stock market. Today I am gonna show you, missing the best days of the market can be extremely costly

Below is research from JP Morgan that I found on the internet. You can see that between 1995 and 2014, the annual return of the S&P 500 is 9.85% if invested through the whole duration. But missing just the 10 best days would drop the annual return to only 6.1%. Missing the 20 best days would drop the annual return to 3.62%. Missing the best 30 days would further drop the annual return to only 1.49%. 

Note this period from 1995 to 2014 includes two financial meltdowns: the 2000 tech bubble bust and the 2008 financial crisis. And yet, if you had just stayed put, you could still get the 9.85% average annual return. Compounding over 20 years would have turned $10k to $65k. But it would be extremely costly if you missed the best market days.

We can’t know the best market days in advance. What can we do to not miss those market days? Quite frankly, it’s actually very simple. Just stay invested through thick and thin. In fact, the best days usually happen right after the deepest despair.

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Michael Zhuang is principal of MZ Capital, a fee-only independent advisory firm based in Washington, DC.

Twitter: @mzhuang

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