Recently, I held a strategy meeting with a client. It started pretty standardly, reviewing their goals and needs then reviewing account performance. Before we even had their account pulled up the client said “Oh yeah, I’ve seen the headlines, I’m sure my account is down.” I was pretty surprised by their sentiment.
We talked for a bit about headlines and how they seem to focus more on the negative than the positive. Market corrections are normal, we know that. Markets go down, then they go up. When they go down, it feels like there is a megaphone amplifying that the market is correcting. However, when the markets are on the upswing, it tends to happen quietly. They go up steadily and all of a sudden, we hear a headline saying, “All-time high.”
What does that mean for you? The most important thing you can do is not let headlines dictate your exit from the markets. When it comes to investing, there are sayings that we think of. “Buy low, Sell High” is probably the most common saying there is. Regarding this topic, another one comes to mind. “It’s about time in the market, not timing the market”. Let’s look at a graph from a Fidelity study that shows what happens if you miss the best days in the market.
From January 1, 1980 to August 31, 2020 there were just over 10,000 trading days. If you missed the best 5 days, your return would have been 38% lower than if you stayed invested the entire time. If you missed the best 50 days your return would have been a staggering 93% lower.
Past performance is no guarantee of future results, however, this data is pretty eye-opening. There is no way to know when the market is going to have its best day, so how can you be sure you are going to participate? Obviously, by staying invested.
One thing to remember, a lot of times a significant positive day in the market can closely follow a significant down day. One example is back in 1987. The Dow Jones Industrial Average had its worst one-day percentage loss (22.61%) on October 19th of that year, also known as Black Monday. On October 21st, just two days later, the DJIA had its 8th highest positive day ever (10.15%). That could be the worst-case scenario for your portfolio, if you sell after the downturn then don’t participate in the following upswing.
The moral of the story, if your time horizon and risk tolerance haven’t changed then you should stay invested. Revisit your risk tolerance and overall financial plan by giving us a call.