To Stay Invested, Or Not?

“It’s time in the market, not timing the market,” goes the old saying. In others words, stay invested and don’t try to trade the market’s direction.

In support of this claim, a study by Birinyi Associates points out how a buy-and-hold investor who put $1 into the S&P 500 in January, 1966 would have earned more than $16 today, but if they missed just the five best days of each year, their return would have been a mere 11 cents.

A new book, Juggling Dynamite, written by portfolio manager Danielle Park, takes issue with that point of view. As part of her counterargument she cites an interesting study by Crestmont Research that looks at returns if an investor missed the 10 worse days in given years. On that basis, the S&P 500 would have gained 5.9% instead of losing 24.2% in 2002. In 2003, the return from missing the 10 worse days would have been 59% versus the 26.4% rise in the S&P 500.

Comments

[NeilEzell:]

Great article Larry. Nothing I haven't read before but a reminder of the basics is often needed, especially by me. I'm one dumb but somewhat lucky investor in the past. Circumstances of an investor are vital for proper risk assessment, diversification, time horizon, etc., so here's mine. Age 54, only child, retired in 1999 due to ailing parents and full custody of 11 year old autistic son. Former restaurant owner, reasonable nest egg just over 1 mil. No debts, own nice but modest home free of mortgage, high property taxes. I know that's just a portion of the information needed to formulate a good investment plan. I lived through 2000, /01 and /02. I panicked on June 7 last week, acted like a fool and liquidated all non retirement investments (good performing mutual funds) other than insured investments (i.e. low interest CD's). I guess a sell low, buy high strategy is the alternative I have now. I feel like an idiot, but stress and financial security can drive a man to do stupid things. I have had poor results with educated fools called financial planners in the past. Actually they weren't too foolish, they made plenty of money from me. Given the limited information above, any suggestions that you are allowed by law to make? Get back in the market now or wait? Either way, thanks for this and other good articles.

2007 Jun 13 09:23 PM

[Larry MacDo...:]

If I may speak in general terms, someone who is retired with dependents should perhaps be following low risk strategies. Exposure to equities should not be too high.

2007 Jun 18 06:45 PM