Timing is everything – whether it’s navigating traffic to get to work on time or getting a table at a popular restaurant. If you miss the window, you might end up stuck in traffic or waiting in line longer than you’d like for dinner. Timing can be tricky for everyday activities, and it’s even more challenging when it comes to the markets. If your timing is off with the markets, research shows it could cost you.  It’s a significant risk.

Making the Right Call

For some investors, timing the market is like calling the right play in football: if you do it right, the risk could be worth the reward. However, if your timing is off, you could end up getting sacked. Missing even a handful of the market’s best days can dramatically cut your investment returns. Conversely, missing several of the worst days in the markets can potentially offer higher returns, but the strategy behind trying to miss the bottom of trading can be challenging.

Historically, missing just 10 of the best days in the markets, a very small amount over a 30-year period, would have dropped your annual average rate of return from 8% to 5.26%.  Missing 30 days and the drop would have been even more steep to near 1.8%. If you missed 40 days, the drop would have been even more to .44%. Change that to a 50 day miss and your annual return would have hit a negative, -.86% annually.¹

In The News

Markets fluctuate greatly and interest rates rise and fall, but outside factors like politics and international trade can also affect investment returns monthly, weekly, even daily. Predicting change is really just guessing. Diversification in investments can be a better overall strategy, limiting exposure and risk by building your portfolio to address your short-term and long-term goals. As life changes with marriage or divorce, a new baby, a new job or even retirement, it’s important to review your financial goals.

The Bottom Line

I believe the best strategy to help manage your risk is to avoid trying to time the markets and remain fully invested throughout a complete market cycle, rather than attempting to time the market by buying and selling to avoid volatility or capture significant gains.  It’s also a strong recommendation to consider rebalancing your portfolio, buying asset classes that have fallen below a portfolio’s long-term allocations and selling those that are higher, while staying fully invested. Regular rebalancing can lead to more consistent returns and again manage your risks, something we always want to do. The markets are never a completely smooth ride, but some simple strategies can help reduce losses and help you maintain performance in the long-term.

1 – Source Bloomberg and Wells Fargo Investment Institute data, February 1994 through January 2024 for the S&P 500 Index. Best days are calculated using daily returns. An index is unmanaged and not available for direct investment. A price index is not a total return index and does not include the reinvestment of dividends. Past performance is not guarantee of future results.

 

 

This article was written by Wells Fargo Advisors Financial Network and provided courtesy of FCS Private Wealth Management.

Investment products and services are offered through Wells Fargo Advisors Financial Network, LLC (WFAFN), Member SIPC. FCS Private Wealth Management is a separate entity from WFAFN.

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