Miss a Little … Miss a Lot

The results are in, and the numbers have been tallied. They show that, without a doubt, you have to be in to win.

That’s because over the past year the U.S. stock market — as measured by the S&P 500 — has climbed the metaphoric “Wall of Worry” and advanced a whopping 31.5 percent over the past year and 17.8 percent so far in 2013.

The market’s most recent upward explosion reinforces the message that no matter how bad the economic news, you shouldn’t cash out completely and sit on the sidelines.

From experience, I know that investments don’t move in a straight line — especially in these financial markets that are characterized by significant government intervention.

To emphasize this point, Goldman Sachs and Franklin Templeton recently published separate studies that analyzed investment returns over the 20-year period from 1992-2011.

The results were astounding — even for me, a 30-year market veteran.

You have to be in the game to win.

During this 20-year period, made up of 5,046 trading days, the market returned an average of 7.81 percent per year. However, if you missed the 10 best days during those two decades, your annual return dropped to 4.14 percent.

Even more shocking is the fact that if you missed the best 30 days, your average annual return actually turned negative — coming in at -0.39 percent.

And if you missed the best 40 days, your returns fell even further to -2.31 percent. Incredible!

The figures are the same whether you were invested in stocks or funds (or both), because mutual funds are wrappers that hold individual stocks inside them.

The lesson here is simple: While your money is at the mercy of the markets every day they’re open, sitting on the sidelines can just as easily jeopardize your current (and future) wealth.

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Those are the facts. And to repeat because it’s important, the facts say that if you only missed the 10 best days out of 5,046 from 1992 to 2011, reviewed by Goldman and Templeton, your returns were almost cut in half.

Yes, 10 missed days over 20 years cost you dearly.

That means, on average, missing just one day every other year squashed what you could have earned.

Wow!

And if you missed the best 30 days in this 20-year period, your returns were negative. Simply amazing!

In case you were wondering, the 10 best days (as measured by the Dow Jones Industrial Average) during this period were:

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What I find even more amazing is that despite the U.S. stock market’s meteoric rise over the past year, there was no one-day return during this period that made the top 10 best days’ list. But, in just the past 30 days the S&P 500 is up 7.7 percent, so you can see for yourself that the market is indeed on an upward tear.

That means if you missed the last 30-day period in the market, you would have lost out on about 25 percent of the past year’s return.

Recognizing all of this, you are probably asking: “What do I do now?”

Well, despite all this good news for stock market investors, there’s an old adage on Wall Street that goes like this, “In investing, the majority is always wrong.” And as the market has recently soared to new highs over the past month, the stock market cynics are becoming more convinced and joining the rally too.

Whenever that happens, it’s usually a good time to start to evaluate your personal circumstances, review your holdings, and lock in some gains.

Best wishes,

Bill

P.S. If you’d like more information about how to get my “buy” and “sell” signals, click here to learn about my trading service — The Park Avenue Society.

Bill Hall is the editor of the Safe Money Report. He is a Certified Public Accountant (CPA), Chartered Financial Analyst (CFA) and Certified Financial Planner (CFP). Besides his editorial duties with Weiss Research, Bill is the managing director of Plimsoll Mark Capital, a firm that provides financial, tax and investment advice to wealthy families all over the world.