Wednesday, January 19, 2011

Missing the Best Days

We often hear about the importance of not trying to time the market and a current study from BTN Research reaffirms this for us. The total return for the S & P 500 index over the past 50 years (1961 through 2010) was 9.7% per year. If you remove the 50 best percentage gain days from the calculation, your annualized return drops by more than half to 4.5% per year. There were 12,586 trading days in the US over the past 50 years, so missing just 0.4% of the biggest up days in the market would have significantly cut into investor returns. This reinforces the philosophy that “time in the market” NOT “timing the market” is the best recipe for creating wealth over the long-term.