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Buy low, sell high. It sounds so simple and wonderful—capturing all of stocks’ upside and skipping the bad parts.

Yet in reality, attempting to navigate all of stocks’ swings can do more harm than good to returns. In Fisher Investments’ view, focusing on the longer-term and resisting the urge to time sharp moves is a more beneficial approach.

Market volatility is part and parcel of investing in stocks—the price tag for stocks’ high long-term returns. Yet scare stories regularly accompany such swings as fears stoke negativity, and relief spurs rebounds. These jolts can feel excessively large, raising investors’ inclination to skirt sharp drops. Some investors try exiting when things get bad, then reinvesting at the bottom—an effort to sell high and buy low. Others delay investing until the coast seems clear, lest their initial investments decline. This ties to psychology—humans feel loss more than gains. Avoiding negativity can be a stronger motivator than capturing positive returns, but it can come at a huge opportunity cost: missing positive returns that would otherwise compound over time—delivering needed growth.

To see this, Fisher Investments suggests considering some hypothetical investors. First: Debby Discipline. She invested $500,000 in the S&P 500 on 1/1/1988, reinvested all dividends and never sold. By 12/31/2021, her investment grew to $19,504,127. [i] She participated in every type of downturn, yet her wealth still grew astronomically over time. Even with the bad, markets have historically risen far more than they fell over time. As long as investors capture the good, it offsets the bad. Not that Fisher Investments advocates a buy-and-hold approach—we think making tactical changes can prove beneficial—but the benefits of staying patient and thinking long term are evident.

Now, let us consider Tommy Timer, who tries dancing around the market’s big wobbles. If he missed only the S&P 500’s 10 biggest up days, his final portfolio value would slip to $8,854,762—less than half of Debbie’s! [ii] Now, some caveats. Five days fell within the 2007 – 2009 global financial crisis, and one fell within 2020’s COVID lockdown-triggered bear market. [iii] Late-stage bear markets often feature sharp moves in both directions, as low liquidity and traders’ needing to cover short positions can drive big one-off up days. So, we think this speaks more to the danger of trying to time the sharp volatility that typically looms in a bear market’s panicky late stages. If you miss some bad with the good it might be a wash, but you also risk setting yourself back if you miss the initial recovery in the process.

Widen your sample to the top 20, 30, 40 or 50 days, however, and you get more days during bull markets. Many occur during the early recovery from bear markets and corrections—early bounces that compound greatly as the new bull market unfolds. As Exhibit 1 shows, the more of these days you miss, the more it can hurt. While extreme, Fisher Investments thinks it shows the danger of locking in downside and missing upside returns.

Exhibit 1: Value of $500,000 Invested in 1988

Source: FactSet, as of 6/7/2022. Daily S&P 500 Total Return Index, 1/1/1988 – 12/31/2021.

Day-to-day volatility is unpredictable. We don’t know when the worst days will occur, nor the best. But those in bull markets are big pieces of stocks’ long-term compound returns. In Fisher Investments’ view, being invested, even through bull markets’ bumps and bruises, maximizes growth opportunities.

If investors need long-term growth and don’t have excessive cash flows, Fisher Investments thinks some stock market exposure is likely best. Being out of the market if you need market-like returns over time is among the biggest risks an investor can take, as it opens the door to missing the returns needed to reach long-term goals. So, while we know enduring volatility is hard, remember: Reaching long-term investing goals is about time in the market, not timing.

Investing in stock markets involves the risk of loss and there is no guarantee that all or any capital invested will be repaid. Past performance is no guarantee of future returns. International currency fluctuations may result in a higher or lower investment return. This document constitutes the general views of Fisher Investments and should not be regarded as personalized investment or tax advice or as a representation of its performance or that of its clients. No assurances are made that Fisher Investments will continue to hold these views, which may change at any time based on new information, analysis or reconsideration. In addition, no assurances are made regarding the accuracy of any forecast made herein. Not all past forecasts have been, nor future forecasts will be, as accurate as any contained herein.

[i] Source: FactSet, as of 6/7/2022. Daily S&P 500 Total Return Index, 1/1/1988 – 12/31/2021.
[ii] Ibid.
[iii] Ibid.

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