The myth of missing best days in market investing

The strongest and weakest days in the market tend to come during the most volatile periods, so they go hand in hand most of the time, Mark Lister writes.

• Missing the 10 best days in the market can significantly reduce investment returns.
• The best days often occur near the worst days, making market timing difficult.
• Staying invested long-term is generally more beneficial than attempting to time the market.

Every once in a while, you hear talk of how much worse off you’d be if you’d missed the 10 best days in a given period.

It usually happens during a rough patch, in the hope it’ll calm investors down and ensure they stay the course rather than panicking and selling at the wrong time.

At some point over the past 20 years I’ve probably written about this myself.

The numbers are always compelling.

If you’d invested $10,000 in the S&P 500 index in the US 30 years ago and left it alone, you’d have $231,000 today.

However, if you’d missed the 10 strongest days during those 30 years, you’d only have $113,000.

That’s still 11 times more than you started with, but it’s 51% less than if you’d stayed put.

The message is admirable, and it’s always good advice to keep your eye on the long game rather than tinkering along the way.

Even so, a point that’s often missed is that the best days usually come during the rough periods. That means they’re often in close proximity to the 10 worst days.

The 10 best days of the past three decades were either during the GFC in 2008 and 2009, or in early 2020 when harsh lockdowns shuttered the global economy.

Seven of those 10 best days came within just a week of one of the 10 worst days.

If your crystal ball allowed you to choose between one or the other, you’d be much better off avoiding the worst 10.

That would’ve meant your $10,000 has grown to nearly $550,000, more than double that of the buy-and-hold investor.

However, that’s highly unrealistic too.

The strongest and weakest days tend to come during most volatile periods, so they go hand in hand most of the time.

If you really did miss those 10 best, you’re probably no worse off as you almost certainly would’ve missed the worst 10 as well.

In our previous example, missing both the best and worst 10 days would’ve seen our $10,000 increase to $263,000 today.

That’s higher than the “stay the course” outcome, but not dramatically so.

Market corrections, generally thought of as declines of 10% or more, are normal.

The S&P 500 has experienced 33 since 1960, so they come every two years or so, on average.

Ten of those 33 evolved into more painful bear markets, where the S&P 500 fell by 20% or more.

The other 23 led to an average decline of 14.7% and lasted an average of four months before the market recovery took hold.

The most recent correction came in the second half of 2023, when the market fell 10.3% before bouncing again.

I’m sure it won’t be too long before we see another, especially after the great run from US equities these last two years.

Right now, the S&P 500 has slipped about 5% from last month’s record high on the back of concern over tariffs, among other things.

The volatility might blow over quickly, or we could see further weakness before markets stabilise.

If that happens, you’ll probably see an article warning about what’ll happen if you miss the best 10 days.

Despite the erroneous thinking, take note of the sentiment.

The author is probably trying to politely remind you that timing the market is extremely difficult, and you’re often better to sit tight and stay put.

Mark Lister is Investment Director at Craigs Investment Partners. The information in this article is provided for information only, is intended to be general in nature, and does not take into account your financial situation, objectives, goals, or risk tolerance. Before making any investment decision Craigs Investment Partners recommends you contact an investment adviser.