Market Timing does not Work

The majority of your stock market returns come from a select few days during the year. It is impossible to predict the updraft of the markets. Missing out on five of the best days of market performance over the last 44 years would have reduced your return by more than 1%; by missing 25 of the best days in the same span of years you would have seen a reduced return by more than 3.5%, resulting in a return that is only 1.69% more than that of one month Treasury bills.

No one can accurately predict, over a lifetime, the handful of days when one should be in the market. You need to be invested every day. The best way to achieve your long-term investment goals is to remain invested, with a portfolio that has diversified investments, and maintain your flight plan.

Being out of the market on a few important days can have an outsized impact on performance

Graphic 3: January 1, 1970 – December, 2013


Source: Dimensional Fund Advisors. Performance data for January 1970- August 2008 provided by CRSP; performance data for September 2008- December 2013 provided by Bloomberg. S&P data are provided by Standard & Poor’s Index Services Group. U.S. bonds and bills data © Stocks, Bonds, Bills and Inflation Yearbook™, Ibbotson Associates, Chicago (annually updated work by Roger G. Ibbotson and Rex A. Sinquefield). Indexes are not available for direct investment. Their performance does not reflect the expenses associated with the management of an actual portfolio. Dimensional Fund Advisors is an investment advisor registered with the Securities and Exchange Commission. Information contained herein is compiled from sources believed to be reliable and current, but accuracy should be placed in the context of underlying assumptions. Past performance is not a guarantee of future results.