Chart of the Week – Since U Been Gone

Welcome to this week’s Chart of the Week.

If you turned on the TV or scrolled through your social media feed on Monday, August 5th, you would have been greeted with the news that the Japanese stock market had fallen 12%. What thought crossed your mind at that moment? For some investors, this would have provided the confirmation they needed to sell until things settled down, and then they could buy back in when the environment was more favourable.

It can be tempting to exit the market during periods of volatility but missing just a few of the best days can significantly impact your overall long-term returns.

This week’s chart shows the effect of missing the best 10, 20, 30 and 70 days over a 20-year investment time horizon. I have seen various versions of this powerful data over the years and so wanted to show it in a visual way using the MSCI World Index, as a representation of a global equity portfolio.

If you invested £100,000 in June 2004 and left it for 20 years, you would now have just over £769k (as of the end of June).

However, many investors find it incredibly difficult not to react to market noise and, at some point, try to time the market. The drawback is that you could miss out on the best days in the markets which, importantly, are often very close to the worst days in the markets. The recent fall in the Japanese stock market was a classic example of this. On August 5^th, the market fell 12.40% and on August 6th, the market rose 10.23%.

The chart shows that someone who stayed invested in global equities over the past 20 years could have received a potential return over three times greater than someone who missed the best 30 days.

The trouble with timing the market is that you must get two decisions right: the right time to sell and the right time to buy back in.

Key Takeaway: Time in the market is usually more successful than trying to time the market. As you can see, missing just a few good days can significantly reduce the growth of your investment.

Keeping your money invested means you can benefit from the inevitable market bounce.

As the football season is now underway, it’s a great time to discover what fantasy football can teach us about the active-versus-passive investment debate in our latest article here.

Have a great week,

Nathan Sweeney, Chief Investment Officer of Multi-Asset

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