By Eric Reich
While I have previously written about the importance of staying fully invested and the dangers of missing the best days in the market, I haven’t highlighted when many of those “best days” have occurred. It might surprise you to know that many of the best days for the stock market came during some of the worst overall time periods. This week, I want to show the relation of both missing the best market days and when they occurred in order to help demonstrate why it is so important to stay invested even during times when everything seems grim.
First, let’s start with what investment performance has looked like over the last 25 years ending Dec. 31, 2021. We will then assume that an investor missed only a small amount of those days. The starting assumption is that you invested $100,000 on Jan. 1, 1997. Assuming you invested it in the S&P 500 index directly (which you can’t, so you must assume a small amount for fees) you would have accumulated the following amounts:
- Fully invested: $1,025,434 which equals an annualized return of 12.34%
- Missed the 10 best days: $469,788 or 8.06%
- Missed the 20 best days: $277,277 or 5.25%
- Missed the 30 best days: $176,239 or 2.89%
- Missed the 40 best days: $116,977 or 0.79%
- Missed the 50 best days: $79,603 or (-1.15%)
- Missed the 60 best days: $55,669 or (-2.92%)
Missing only the best 40 days out of 25 years or 9125 days would have caused an investor nearly to break even instead of growing their investments by more than 10 times! Do you really believe you can predict which 40 days over the next 25 years will be the best? No, I can’t either.
I believe that what is more surprising than what these numbers show is that of the 30 best days of the last 25 years, all but six of them came during major market meltdowns. Here is the breakdown of when they occurred during periods of extreme volatility:
- Six of the best days came during the tech crash of 2000-2001.
- Six more of the best days came during the start of the COVID-19 pandemic from January 2020 to March 2020.
- Twelve of these best days came during the financial crisis of 2008.
If you can’t guess what days will be the best, you certainly won’t guess most of them are likely to occur during some of the most volatile time periods, when investors are least likely to want to make risky investments. For this reason, I can’t stress enough the importance of staying fully invested even when your gut tells you not to.
Source: Bloomberg L.P. 1/1/97-12/31/21. For illustrative purposes only and not intended as investment advice. This does not predict or depict the performance of any particular investment. An investment cannot be made directly into an index. Past performance does not guarantee future results.
Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment advisory services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS. Reich Asset Management, LLC is not affiliated with Kestra IS or Kestra AS. The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra Investment Services, LLC or Kestra Advisory Services, LLC. This is for general information only and is not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney, or tax advisor with regard to your individual situation. To view form CRS visit https://bit.ly/KF-Disclosures.
Eric is President and founder of Reich Asset Management, LLC. He relies on his 25 years of experience to help clients have an enjoyable retirement. He is a
Certified Financial Planner™ and Certified Investment Management AnalystSM (CIMA®) and has earned his Chartered Life Underwriter® (CLU®) and Chartered Financial Consultant® (ChFC®) designations.
