I am sure many of us have heard that trying to “time the market” is not a good idea. Statistics have shown that missing the five best trading days of the year can significantly affect investment returns.
Well, a different statistic this year shows again why timing is not a good idea. According to a study last week by the analysts at Bespoke1 , year-to-date returns for the S&P 500 Index would have dropped from 8.3 percent to -3.8 percent if you were out of the market the first trading day of each month!
The concept of buying near the low end and selling near the high end of a trading range in an attempt to extract incre¬mental return out of a relatively flat market may be appealing. However, when large returns are spread among a few widely dispersed days, asset allocation suddenly looks more attractive than attempting to aggressively trade a range-bound market.
The message? Traditional investment markets continue to be a great place for a longer-term strategy, but jumping in and out of the market for incremental returns is playing with fire.
Source (1): “If Only There Were 20 Months a Year”, December 1, 2010, Bespoke Investment Group, www.bespokeinvest.com
