Impact of Being Out of the Market

Dear Clients and Friends:

As we have pointed out many times in past correspondence, market timing is not an effective investment strategy.  Investors who attempt to sell when they think the market is priced too high, and buy when they think it is too low, inevitably get it wrong and realize inferior returns when compared to low-cost, buy-and-hold strategies.

The basic reasons market timing strategies fail are 1) there are significant transaction costs related to buying and selling, 2) there are significant tax costs, and 3) odds of successfully picking the market highs and lows are extremely low.

This week’s graphic demonstrates why the odds are against market timing.  The graphic shows that the annualized return achieved by investing in the S&P 500 between January 1, 1997 and December 30, 2016 was 7.68%.  Investing in the S&P 500 simulates a buy-and-hold strategy.  The graphic also shows the return for an investor who invested in the S&P 500 but was out of the market for the 10, 20, 30, 40, 50, and 60 best days for the market during the 20-year period measured.

It is shocking to see the negative impact on annualized return that occurs when just a few good days are missed.  Click here to see the percentages.

We sincerely appreciate your continued business and hope that you find the graphic both interesting and informative.  If you have any questions or concerns, please contact Steve at 818.449.3122 or

Very truly yours,
Berkson Asset Management, Inc.
Registered Investment Advisor

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