The '£17,808 cost' of mistiming your investments

When markets fall the natural instinct is to sell. Our research highlights how costly it can be to miss the stockmarket’s best days.

19/03/2018
Vintage-pocket-watch

Authors

David Brett
Multi-media Editor

Buying low and selling high is every investor’s goal. However, timing the market precisely is notoriously difficult, if not impossible.

Research undertaken by Schroders shows how costly it can be when the timing is wrong.

Over three decades, mistimed decisions on an investment of £1,000 could have cost you nearly £18,000-worth of returns.

Our research examined the performance of three indices that reflect performance of the UK stockmarket – the FTSE 100, the FTSE 250 and the FTSE All-Share.

If in 1987 you had invested £1,000 in the FTSE 250 and left the investment alone for the next 30 years it would now be worth £24,686. (Bear in mind, of course, that past performance is no guarantee of future returns).

However, if you had tried to time your entry in and out of the market during that period and missed out on the index’s 30 best days the same investment would now be worth £6,878, or £17,808 less.

In terms of annualised returns, over the last 30 years you would have made:

  • 11.3% if you stayed invested the whole time
  • 9.3% if you missed the 10 best days
  • 7.9% if you missed the 20 best days
  • 6.6% if you missed the 30 best days

The 2% difference to annual returns between being invested the whole time and missing the 10 best days doesn’t seem much but the effect builds up over time, as shown in the table below.

UK stocks investment returns since 1987

IndexReturn on £1,000 over 30 yearsLess the 10 best daysLess the 20 best daysLess the 30 best days
FTSE 250 £24,686 £14,456 £9,750 £6,878
FTSE All share £13,320 £7,124 £4,637 £3,168
FTSE 100 £12,989 £6,691 £4,238 £2,833

Source: Schroders. Thomson Reuters Datastream. Data shown is for total return indices, which include dividend payments, between 23 October 1987 and 23 October 2017. Past performance is not a guide to future returns.

When observing returns over long periods, investors should also bear in mind that markets can be volatile, with many ups and downs during the timespan.

Nick Kirrage, a Fund Manager, Equity Value, and a blogger on the Value Perspective, said:

“You would have been a pretty unlucky investor to have missed the 30 best days in 30 years of investing, but the figures make a point. The point is that timing the market can be very, very costly.

“Investors are often too emotional about the decisions they make: when markets dive, too many investors panic and sell; when shares have had a good spell, too many investors go on a buying spree.

“The irony is that historically many of the stockmarket’s best periods have tended to follow some of the worst days, as shown in previous Schroders research.

“It’s important to have a plan of how long you plan to stay invested, with that plan matching the goals of what you’re trying to achieve, be it money for retirement or your children’s university education. Then it's just a matter of sticking to it - don't let unchecked emotions derail your plans.”

Schroders has devised an investIQ test that measures emotional biases. It aims to make investors more aware of these biases so they can make better decisions. Take the test.

Important information: The views and opinions contained herein are those of the author(s) on this page, and may not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds. This article is intended to be for information purposes only and it is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations. Information herein is believed to be reliable but Schroders does not warrant its completeness or accuracy. No responsibility can be accepted for errors of fact or opinion. Reliance should not be placed on the views and information in the document when taking individual investment and/or strategic decisions. Past performance is not a reliable indicator of future results, prices of shares and the income from them may fall as well as rise and investors may not get back the amount originally invested. Issued by Schroder Investment Management Limited, 31 Gresham Street, London EC2V 7QA, which is authorised and regulated by the Financial Conduct Authority. For your security, communications may be taped or monitored.

Authors

David Brett
Multi-media Editor

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