Stock Time

Time In Markets (Not Market Timing) is Key to Building Wealth

Stock Time

You've probably heard this axiom before: "The definition of insanity is doing the same thing over and over again and expecting a different result."

Such a sage principle of life is especially true when it comes to investing. Stock and bond markets are places where millions of different traders meet each day to agree on a price that both buyers and sellers can find acceptable -- i.e., fair. 

By definition, markets have no memories. So, trying to figure out when to get in and when to get out requires an investor to be right twice. You can make a knee-jerk decision to sell, but that raises an equally dicey proposition -- when do you get back in? 

Based on independent studies by leading academics followed by IFA's investment committee, as well as research on thousands of our own client portfolios, we recommend developing a strategic investment plan. Such an approach is designed to put you in a better position to capture the "ups" of markets and ride-out the "downs."

Instead of reacting to each market gyration, we encourage investors to resist any momentary urge to try to time markets. 

How harmful can mistiming markets be to your portfolio? Below is a graphic we've created to illustrate what missing just a few of the market's best days can mean to performance over time. 

This look at a hypothetical investment in the stocks that make-up the IFA SP 500 Index shows that remaining invested helps to ensure that your portfolio's poised to capture what the market has to offer. Key results from such research include:

  • A hypothetical $1,000 turned into $3,219 from 2000 through 2019.
  • The return dwindled to $2,136 if you missed the blue-chip index's five best days.
  • Missing the best 20 days resulted in your return dropping to $1,015.
  • Staying invested throughout this period would've returned an annualized 6.02%. 

There is no proven way to time the market, whether you're targeting the best days or moving to the sidelines to avoid the worst days. History shows that staying put through good times and bad is the best course of action.

This same basic pattern shows up in more volatile asset classes like small-cap stocks. The table below illustrates that missing the 40 best days in the IFA U.S. Small-Cap Stock Index during this same 20-year period would've produced a negative annualized return (-2%). If you invested $10,000, that translated into a loss of more than $3,319.

By contrast, if you'd stayed invested, a portfolio following IFA's domestic small-cap blended index would've generated an annualized gain of 8.87%, and your portfolio would've been enriched by $44,000-plus.

The clear takeaway here: A correlation exists between time invested and building a diversified portfolio's value. 

And that's true whether you're investing in small-cap stocks, which historically have provided greater upside potential (along with higher levels of risk), or more staid blue-chip stocks. 


This is not to be construed as an offer, solicitation, recommendation, or endorsement of any particular security, product or service. There is no guarantee investment strategies will be successful.  Investing involves risks, including possible loss of principal. Performance may contain both live and back-tested data. Data is provided for illustrative purposes only, it does not represent actual performance of any client portfolio or account and it should not be interpreted as an indication of such performance. IFA Index Portfolios are recommended based on time horizon and risk tolerance.  For more information about Index Fund Advisors, Inc, please review our brochure at https://www.adviserinfo.sec.gov/ or visit www.ifa.com.