Want to double your investment returns? Stop trying to time the market, experts say

"For young investors, it's not about timing the market. It's about time in the market."


What a difference a day makes. Or, for investors, 10 days. From the beginning of 2001 through the end of 2020, the S&P 500 returned an annualized 7.5%. Had you invested $10,000 at the beginning of the period and stayed invested for the duration, you'd have ended up with $42,000 heading into this year. Not too shabby.

But if, over the course of two decades, you missed the 10 best days for the stock market, you'd have less than half that — just over $19,000 — according to data from J.P. Morgan Asset Management. If you missed the 20 best days, you'd have a net gain of about $1,500 to show for your 20 years in the market.

While no investor is unlucky enough to miss only the best days over a 20-year span, the message behind the math is clear, financial experts say: For the best long-term returns, you'd be wise to stay invested and to avoid trying to time your trades to swings in the market.

"For young investors, it's not about timing the market," says Marguerita Cheng, a certified financial planner and CEO of Blue Ocean Global Wealth in Gaithersburg, Maryland. "It's about time in the market." Here's why.

Why it pays to stay invested

"Wait a second," you may be thinking. "Wouldn't the inverse work as well? I'd be better off missing the 10 worst days too, right?"

Well, yes. From the beginning of January 2000 through the end of 2019, a $10,000 investment in the S&P would have grown to about $32,000. Had you avoided the 10 worst days over that span, your total would jump to more than $68,000, according to data from the American Association of Individual Investors.

It makes sense that there is such a big bump, since major drawdowns can significantly hurt your long-term results. Remember: A 50% loss in your portfolio requires a 100% gain to break even.

And attempting to position your portfolio to miss out on bad days amounts to trying to time the market. That doesn't work, says Ellen Rogin, a CFP and co-author of "Picture Your Prosperity." "Timing the market is impossible, because you have to make two decisions: when to get out and when to get back in," she says. "And if the market went up during a pandemic and after an insurrection, if you're trying to guess what moves markets, you're not going to be able to."

Even if you are clever enough to avert some of the market's bad days, chances are you'll be missing some good days, too, while you wait to reenter the fray. Over the 20-year period J.P. Morgan examined, seven of the market's 10 best days occurred within two weeks of the 10 worst days, the researchers found.

"The only sure way to avoid bad times in the market is to not invest," says Cheng. "But then, of course, you're missing out on all the good times too, and you're not taking advantage of the magic of compound interest."

How investors can remove emotion from the equation

Investors, especially inexperienced ones, may be tempted to take their ball and go home if they see big red numbers emerging on their portfolio page. "When things are going down, it's scary," says Rogin. "But if you're investing for the long term, these short-term dips in the market don't matter as much."

If you think you may be prone to panicking and taking money off the table when markets run into trouble, it may make sense for you to pare back how much you're interacting with your investments, she adds. Some experts recommend checking in just once a quarter.

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"People should know what's going on. But if markets get rocky and you know you're invested long term, maybe you don't look at your accounts as often," Rogin says. "It's analogous to getting on the scale four times a day. Is that really going to help you lose weight and be happier?"

Another way to keep the emotional toll of losing money from derailing your investing plans is to practice dollar-cost averaging. By investing a set amount of money into your portfolio at regular intervals, you more or less set your investments on autopilot, says Cheng. "Sometimes, the hardest part of investing is actually staying invested," she says. "It's OK to be nervous when markets go down. Just don't panic. If you're putting money into the market consistently, you get to buy those dips."

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In other words, investing at regular intervals guarantees that you buy more shares when stocks are cheap and fewer when they're expensive. The good news is, you're likely already doing this if you invest in a workplace retirement plan, such as a 401(k). If your employer doesn't offer such a plan, you can open a traditional or Roth IRA and set up automated contributions from your bank account.

By automating, "you take the emotion out of it. You're not deciding if it's the right or wrong day. It's just payday," Rogin says. "I think it's really healthy for people to just take that decision off the table."

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