The market swings that have come out of the Covid-19 epidemic have made most of us a little dizzy. It is during times like these that our emotions might not work in our favor. While history is always changing and never the same, it is often our best guide as to what to do now. Over the next 3 weeks I am going to outline a few simple investing lessons backed by years of data.
First up is the surprising reality of missing out on just a few days in the market. While you often hear “investing is for the long haul”, the majority of stock market growth (and losses) comes from just a few days a year. The problem is you don’t know when those will be. To be a part of the positive days, we often have to bear the painful downside. However, if you can stay invested, history tells us that you will come out ahead.
Example - $10,000 invested in the S&P 500 in 1998 would have provided you with nearly $30,000 by the end of 2018. However, if you had missed the 20 best days in the market – yes, that’s only 20 days over 20 years – you would have slightly less than your original $10,000 (Goldberg, 2019). Consider that for a moment. If you were invested during that time frame you went through the painful dot com cash of the early 2000’s and the financial crisis just a few years later. It didn’t matter. You still came out just fine if you stayed invested. (Past performance is no guarantee of future results.)
While the ideal scenario would be to avoid the 20 worst days, we all know intuitively that that is nearly impossible to do. While doing nothing rarely sounds like the best plan, it is usually the right course of action for many of the families we work with.
Disclaimer: Alex Voorhees and Reston Wealth Management do not provide legal, accounting or tax advice. This information is not intended to be a substitute for specific individualized investment, tax or legal advice. We suggest that you discuss your specific situation with a qualified investment, tax or legal advisor. The opinions voiced in this article are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) or strategies may be appropriate for you, consult your financial advisor prior to investing. No strategy assures success or protects against loss. You should consider the investment objectives, risks, charges and expenses of any investment carefully before investing. You cannot invest directly in an index.
Goldberg, Andrew. “The Beauty of Doing Nothing.” Jpmorgan.com, 26 July 2019, www.jpmorgan.com/securities/insights/the-beauty-of-doing-nothing