We believe that those who invest for the long-term are best served by staying in their seats during times of extraordinary market turbulence. Emotional and anxiety driven efforts to get out of the market when times are bad and get back in the market when times are better often lead to costly results.
To help illustrate this point, we have attached a piece provided by Dimensional Fund Advisors entitled “Recent Market Volatility” (click here). The piece graphically displays the market (as defined by the Russell 3000) during the 41-year period from 1979 thru 2019. We note that significant market volatility occurred throughout the period and that substantial intra-year losses were experienced in all but 7 years. However, “despite substantial intra-year drops, calendar year returns were positive in 34 years out of the 41 examined.” As such, one might observe that trying to make course corrections in advance of unpredictable yearly market swings is more a matter of luck than of skill.
“The Cost of Trying to Time the Market (click here)” is well illustrated in this DFA piece showing the hypothetical growth of $1,000 invested in the S&P 500 from January 1, 1970 thru March 17, 2020. The impact of missing just a few of the market’s best days can be profound, and by missing the best 25 days during this time period an investor would have $94,364 less than if the $1,000 investment remained in the market throughout the entire period. Again, “there’s no proven way to time the market – targeting the best days or moving to the sidelines to avoid the worst – so history argues for staying put through good times and bad.”