The cost of market timing

Sources: Bloomberg, Ned Davis Research, and Wells Fargo Investment Institute. Market downturn analysis: data from January 3, 1928 to September 30, 2021. Past 30 years: data from October 1, 1991 to September 30, 2021. Past 20 years: data from October 1, 2001 to September 30, 2021. Past 10 years: data from October 1, 2011 to September 30, 2021. For illustrative purposes only. The S&P 500 Index is a market capitalization weighted index composed of 500 stocks generally considered representative of the U.S. stock market. An index is unmanaged and not available for direct investment. Past performance is no guarantee of future results. A price index is not a total return index and does not include the reinvestment of dividends. Investing in stocks involves risk and their returns and risk levels can vary depending on prevailing market and economic conditions.

Note: Corrections are declines of 10% or more. Bear markets are declines of 20% or more.

Key Takeaways

  • The majority of market drawdowns have been between 5% and 10% declines. These tend to recover much quicker than more severe corrections.
  • Over 20- and 30-year time periods, missing the best 10 days reduced the potential investment amount by 50%. Missing the 50 best days resulted in an ending period balance that was below the original investment.