Time in the market not timing the market

Fidelity International demonstrates the importance of time in the market over timing the market

As markets continue to be volatile, Fidelity International demonstrates the importance of time in the market over timing the market – and shows how difficult it is to predict the ups and downs.

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Time in the market not timing the market

As markets continue to be volatile, Fidelity International demonstrates the importance of time in the market over timing the market – and shows how difficult it is to predict the ups and downs.

With markets experiencing sharp gyrations in the past few weeks, investors may be looking to beat the market by trying to buy funds or stocks at the bottom of the cycle and selling close to the top, known as ‘market timing’. They may be surprised at how difficult this can be.

According to Fidelity International, an investor who invested £1,000 in the FTSE All Share index 30 years ago but missed the best 10 days in the market since then would have achieved an annualised return of 7.09% and ended up with a total investment of £7,811.55 according to Fidelity.

That compares with an annualised return of 9.38% and investments worth £14,733.64 if they had stayed in the market the whole time – an opportunity loss of £6922.09.

If the investor had missed the best 20 days, their annualised return would be 5.55%, which would have resulted in an even worse shortfall of £9676.56.

Tom Stevenson, investment director for personal investing at Fidelity International said: “With the FTSE 100 recently falling 19% below the cyclical high of 7122.74 reached last April, investors will be unsettled.

“However, it should be remembered that volatility is the price you pay for the long-term outperformance of equities over other asset classes. Corrections often provide investors with an opportunity to add to their portfolios at attractive prices.

“That said, our analysis shows the risks of trying to time the market and how expensive it can be when you get it wrong. It’s difficult to predict the best time to be in and out of the market, especially as the best and worst days very often tend to be bunched together during periods of heightened volatility.

“It’s usually more prudent to stay fully invested through market cycles as missing even a handful of the best days in the market can seriously compromise your long-term returns. As the old stock market adage goes; time in the market matters more than timing the market.”

The effect of missing the best days in the FTSE All share over the past 30 years:

14/01/1986 to 14/01/2016Whole time in marketLess 10 best daysLess 20 best daysLess 30 best daysLess 40 best days
£1000 invested£14,733.64£7,811.55£5,057.08£3,458.15£2,449.59

The effects of missing the best days in the FTSE 100 over the past 30 years:

14/01/1986 to 14/01/2016Whole time in marketLess 10 best daysLess 20 best daysLess 30 best daysLess 40 best days
£1000 invested£13,397.05£6,799.00£4,276.03£2,843.99£1,979.87

The effects of missing the best days in the FTSE 250 over the past 30 years:

14/01/1986 to 14/01/2016Whole time in marketLess 10 best daysLess 20 best daysLess 30 best daysLess 40 best days
£1000 invested£31,370.97£18,371.92£12,390.57£8,741.13£6,351.64

 Source for all data: Fidelity, January 2016

Editorial Note: This content has been independently collected by the EveryInvestor advisor team and is offered on a non-advised basis. EveryInvestor may earn a commission on sales made from partner links on this page, but that doesn’t affect our editors’ opinions or evaluations. Learn more about our editorial guidelines.
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