The £33,000 cost of trying to time the market

Research published in late May 2021 by the investment house Schroders shows how costly it can be to miss the stock market's best days. While many investors like the idea of buying low and selling high, that is far easier said than done.

Getting it wrong can be very costly!

In the real world timing the market is a very tricky thing to get right. Not only that, but getting it wrong can be very costly. We only need to look back over the last year or so to witness that.

Rather than timing the market, the Schroders research has shown that time in the market is the real trick to successful investing. Their research examined the performance of just £1,000 over the last 35 years, could have cost an investor almost £33,000-worth of returns.

They looked at the performance of the UK's 3 main stock market indices (FTSE 100, FTSE 250 and FTSE All-Share). If you invested £1,000 in the FTSER 250, at the beginning of 1985, left it alone, then 35 years later, it might have been worth £43,595. (Please note that past performance is no guarantee of future returns.)

'Time the market' - potential outcome

If you hadn't left it alone and had tried to time your entry in and out of the market, then the outcome could have been very different. If by doing this you had missed out on the FTSE 250 index's 30 best days, then that same investment would have been worth £10,627. In other words, £32,968 less. (The effect of charges and inflation haven`t been factored in, but you can see the impact.)

Their research goes on to make the point that, over the 35 years in question, the investment in the FTSE 250 would have returned;

• 11.4% per year if you stayed invested the whole time.
• 9.5% per year if you missed the best 10 days.
• 8.1% if you missed the best 20 days.
• 7.0% if you missed the best 30 days.

Therefore, it is time in the market, rather than market timing, which is the real trick to successful investing.

If you would like to find out more about this, or want to discuss the issues which this article has raised, please contact your Dentons Wealth Independent Financial Adviser.

You can also read more about timing the market in a previous article:  Time in the Market vs Timing the Market | Dentons Wealth

Although every effort has been made to ensure that the information provided in this article is accurate and correct, the information provided does not constitute any form of financial advice. We recommend that you take financial advice before making any financial decisions.