Time not timing

Columbia Management, Investment Team | November 17, 2014

30 years equals about 11,000 days. One might assume that eliminating a few of those days would have little impact on investment performance during that time. Yet, if the ten best days of the S&P 500 Index for the period 1983- 2013 are excluded, the average annual return drops from 8.40% to 5.80%. If the twenty best days are excluded, the average annual return drops to 4.09%.

If individual days can affect performance so dramatically, then why not be in the market for the good ones and out for the bad ones? Far easier said than done. Many investors try to time the market, chasing today’s hot investment or fleeing the latest downturn. Such a short-term perspective can harm performance and jeopardize your long-term financial goals.

Another common tactic during periods of market volatility and uncertainty is to park long-term assets in cash investments. While waiting on the sidelines can sometimes seem the prudent strategy, it comes at a cost. CDs and money market accounts may be less volatile than stocks and bonds, but they also offer little opportunity for growth and income.

Stock market ups and downs may be part of the investing cycle, but they can put investors to the test. To help stay the course in volatile markets, Columbia Management offers the following illustrations based on fundamental investing principles. While no strategy can assure a profit or protect against loss, it’s been shown time and again that time, not timing, matters most when building wealth for the long term.

Click for illustrations on Time not timing, Dollar-cost averaging and Recovering from a crisis.