Snapshot

The cost of trying to time the market since 2001


David Brett

David Brett

Investment Writer

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“Buy low, sell high” – that’s every investor’s goal. However, it’s easier said than done. Especially if you’re trying to time the market, which is notoriously difficult, if not impossible.

It can also be costly. Our research shows just how costly it can be when you get the timing wrong.

Over two decades, mistimed decisions on an investment of just $1,000 could have cost you more than $2,000 worth of returns.

Our research examined the performance the MSCI Global Index, which reflects the performance of global stocks.

If at the beginning of 2001 you had invested $1,000 in the MSCI Global Index and left the investment alone for the next 19 years it might have been worth $3,071 by the end of 2019. (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 you could have lost money.

The same $1,000 investment might now be worth $845 or $2,226 less, not adjusted for the effect of charges or inflation.

Over the last 19 years you could have made:

  • 6.1% per year if you stayed invested the whole time
  • 2.9% per year if you missed the 10 best days
  • 0.9% per year if you missed the 20 best days
  • -0.9% per year if you missed the 30 best days

As the figures show, there is a big difference to annual returns between being invested the whole time and missing even the 10 best days.

What a $1,000 investment in 2001 could be worth now

Time-in-the-market-global-msci-chart1-400911.jpg

Please remember that past performance is not a guide to future performance and may not be repeated. The value of investments and the income from them may go down as well as up and investors may not get back the amount originally invested.

Source: Schroders. Refinitive data correct as at 15 Jan 2020. Data is for all indexes displayed is for total returns, which includes price change and dividends.

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

The last 19 years have included two of the biggest stock market crashes in history: the bursting of the internet bubble, known as the dot com crash, in 2001, and the subsequent recession, and the global financial crisis, which battered markets between 2007 and 2009.

The MSCI World: 2001-2019

Time-in-the-market-global-msci-chart2-400911.jpg

Source: Schroders. Refinitive data correct as at 15 Jan 2020. Data displayed is for MSCI Global Index total returns, which includes price change and dividends.

Nick Kirrage, a fund manager on the Schroders value investing team, said: “You would have been a pretty unlucky investor to have missed the 30 best days in 19 years of investing, but the figures make a point: trying to time the market can be very, very costly.

 “As investors we are often too emotional about the decisions we 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.

 “At times over the last two decades you would have to have had nerves of steel as an investor.

“They have included some monumental stock market crashes including the bursting of the dotcom bubble at the turn of millennium and the financial crisis in 2008, to name but two.

“The irony is that historically many of the stock market’s best periods have tended to follow some of the worst days.

“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."

Speak to a financial adviser if you are unsure as to the suitability of your investment.

The views and opinions contained herein are those of Schroders’ investment teams and/or Economics Group, and do not necessarily represent Schroder Investment Management North America Inc.’s house views. These views are subject to change. This information is intended to be for information purposes only and it is not intended as promotional material in any respect.