Perfect Timing Doesn’t Equal Perfect Results

By Marc C. Shaffer

Skip the bad days? It sounds like a great concept.

How many of you would choose to skip right over 2020? If only we all had perfect foresight – both in life and with finances.

Here’s one thing we know about investment markets: in election years, years where we experience a pandemic, years that are filled with big news and years that are calm…they fluctuate.

It’s easy to look back in time and think you should have made one financial decision over another, but it can be a dangerous mental game to play, especially when it leads you to try timing the market.

How many good moments in life would we miss by skipping a day that seemed bad? How much opportunity would we miss by stepping out of the investment markets because things seem bad? Potentially, quite a lot.

A recent study, which analyzed the hypothetical growth of $10,000 invested in the S&P 500 Index from January 1, 1980 through August 31, 2020, found that if you missed out on just the best five days over that period, your return could be 38% lower than its fully invested potential return.

Missed out on the best 50 days over that period? You could be 93% lower.


How would you ever know which five or fifty days could be the most costly out-of-the-market days over a 40 year period?

Staying on the sidelines waiting for a “bad day” to jump in at a deal could have a dramatic impact on your investment portfolio as well.

Another study found that just one out of every 20 trading days closed at a price that would have been considered the absolute lowest. If you’re looking for how things could have gone better, you’ll probably find an answer, but is it valuable?

The study showed that when comparing the strategy to buy at the lows vs. dollar cost averaging of investing the same amount every month, buying at the lows only outperformed the alternative by less than one percent.

That’s a lot of work and potential for costly mistakes for such a low result.

Volatility, market sentiment, emotional investors—these are factors of investing you can’t change or accurately predict. A level of risk will always come with investing, so minimizing the impact of outside factors and not letting your own emotions get in the way are key.

It doesn’t take investing at a bargain price to reach your investment goals. By following a disciplined approach to your investment plan, which takes into account your goals, time horizon and risk tolerance level, combined with an understanding of the economic landscape and investment strategy, you can design an investment plan to help meet your needs.

Market timing calls for knee-jerk reactions to current events and quick decisions that may have no basis in research. A disciplined strategy calls for patience and sound analysis.

If outside factors cause you to want to make big changes in your investment portfolio, it may mean you need to take a closer look at how your investment strategy was designed and why you don’t feel confident in the measures you’ve already taken.

Working with a financial professional who can help you navigate the investment markets and develop an investment strategy that helps meet your needs can alleviate the need for you to do day-to-day portfolio management tasks.

Have you considered finding a professional who can manage these details for you?

Please remember that different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product made reference to directly or indirectly in this content, will be profitable, equal any corresponding indicated historical performance level(s), or be suitable for you or your portfolio. Due to various factors, including changing market conditions, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this newsletter (article) serves as the receipt of, or as a substitute for, personalized investment advice from Searcy Financial Services, Inc.

The content of this letter does not constitute a tax or legal opinion. Always consult with a competent professional service provider for advice on tax or legal matters specific to your situation. To the extent that a reader has any questions regarding the applicability of any specific issue discussed in this content, he/she is encouraged to consult with the professional advisor of his/her choosing.  

Published for the blog on January 6, 2021 by Searcy Financial Services, your Overland Park, Kansas Fee-Only Financial Planner and Investment Manager.