• Sébastien Van Passel

Time not timing - What happens when you miss the best days in the market?

Mis à jour : 22 janv. 2019


We were in 2014 and for the first time I wrote about this topic. Today it's maybe a good "momentum" to think about wrong investment reactions during an uncertain time.


Some people told me :


"But why should I stay invested during this bad period when the stock markets are plunging?" and others expressed this common statement : "I'll wait for a better period to invest again!"

A recent study made by Schroders among 22.000 European investors showed that 23% of investment experts don't change anything in their portfolio during a bear market while 26 % of them take the decision to invest more money in the market. That market research pointed out that non-experts have a more passive behavior; as a matter of fact, 41 % have a passive behavior and keep their positions when only 12% among them reinvest their cash in the market. So, what about you? Not easy to take that kind of decision in volatile periode isn't it?!


How should your investment advisor help you to manage this situation with you?


As an investment specialist I'll never force an person to invest when he has a bad feeling about the market and has not the willing to invest. I'll also recommend to all my fellow colleagues to verify the risk tolerance of their clients in order to spend more quitely a turbulent period in the market.

This is how to react when the market is going in the wrong direction but, the main purpose of this article is to stress people on an important assertion : "don't miss the best days of recovery".


Great, thank for your advices Mr Van Passel, but what does it mean concretely?

When you observe the S&P 500 on a long period of time (1970-2013) someone that invested 1.000 USD and stayed constantly invested has a had a significant performance gain compared to an investor that missed only a few days of market recovery.



And what about a shorter period of time including the crash of the tech bubble; 9/11 or the bank and subprime crisis in 2007?


If you look at those charts you'll observe a little difference on investment returns for that shorter period of time. Even though if you missed 15 or 25 best single days during the last 27 years you'd have lost more money in comparison with a longer period of time (+2% annually). In any case waiting for a better investment period is not the best advice that we could provide you. Remember also that asset allocation is king, like I explained it in a previous article :"Is asset Allocation still King?"


Conclusions : This means that your investment strategy needs a diversified portfolio and time. Furthermore, don't try to time the market and stay stick to your asset allocation if of course it's still correlated to your maximum investment risk tolerance.


sources:

  • Les échos : https://patrimoine.lesechos.fr/placement/placement-boursier/0600360207803-bourse-que-font-les-investisseurs-en-cas-de-baisse-des-marches-2231267.php

  • Ibbotson associates & Morningstar : https://www.morningstar.com/company?cid=RED_EOL0001

  • https://thebamalliance.com/wp-content/uploads/2014/11/DFAChart.png

  • http://tci-foundation.org/jump-or-wade-an-historical-perspective/dfa-reacting-can-hurt-performance/

  • https://wealthmgmtllc.com/wp-content/uploads/2016/03/Reacting-Can-Hurt-Performance.pdf


Disclaimer : Past performance does not guarantee future results. You should not rely on any past performance as a guarantee of future investment performance. Unit values and investment returns will fluctuate. Investors are cautioned that data based on less than five years’ experience may not be sufficient to establish a track record on which investment decisions can be based.


#markettiming #markets #bearmarket #volatilty #investment #USEquities #diversification #assetallocation #timing #behavior #behavioralfinance #behaviour

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Sébastien Van Passel |sebastien@4investors.eu  |+32.470.369.636 | Belgium

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