Financial Planning Fridays #25: Don’t Give Your Investments a Day Off

You should take lots of days off to enjoy life but your investments, no, they should remain invested, working for you every single day. Once you have developed your long-term financial plan, and have a solid investment strategy, it is critical to keep your stock portion invested no matter what happens in the world and in the markets. And here’s why:

This chart shows the value of $10,000 invested in the S&P 500 in the last forty years with the dividends reinvested. Each time there was a decline, many, many people sold stock to avoid the current crisis. Because it felt new, different, scarier, people were unable to hang on, and moved out of the market. And by doing so, they avoided any further decline, and temporarily relieved their emotional pain. However, at that point, the truly hard part began.

When do you re-enter the market? How do you know when it’s “safe” again? That is an impossible game to play. Because most often, by the time we feel comfortable to re-enter the market after one of these temporary declines, the market has rebounded five to ten to 20% or more, and has usually done so in a hurry. In fact we can show you two recent examples:

The first is March 9, 2009 until March 26, 2009 – the S&P 500 was up 22% in just 14 trading days!– and we have not seen the March 9th price since then.

The second and more recent example is March 23rd, 2020 to April 17th- in about 3 weeks the market was up more than 28% and we have not seen the March 23rd price again since then.

Unfortunately, anyone who sold stock during one of these declines locked in that temporary loss and may have missed the chance to purchase stock at prices that we are unlikely to ever see again as the market continues to climb while their investments are sitting on the sidelines.

We can also look at the importance of staying invested another way. This chart from Fidelity shows the impact of missing just a few of the best days in the market over a long period of time. Many of those best days came during bear markets and right after the worst days in the market.

A $10,000 investment in the S&P 500 made on January 1, 1980, held the entire time through March 31, 2021, would have been worth more than $1 Million. However, if you missed just the five best days over that same 40+ year period, you would have missed out on more than $325,000 in gains!

If you had missed the 10 best days- more than $500,000 in gains would have been lost. And if you had missed the 50 best days out of about 10,000 trading days over 40 years- less than half a percent of all possible days – You would have missed more than $900,000 in gains during this time. Your investment would be worth about $78,000 instead of more than $1Million.

This is another example of why it is so important to keep your long-term stock investments in the market the entire time-don’t give your investments a day off! Whatever happens next, we are confident that our clients will succeed because of their solid long-term financial plans and our commitment to continue to rebalance through the market volatility.

Be on the lookout for our next Financial Planning Fridays episode. Subscribe to our Youtube Channel so you never miss an episode. Or contact us directly; schedule your 15-minute call with us today.