Market Timing Versus Time in the Market
Money For the Rest of Us
J. David Stein
4.5 • 1.4K Ratings
🗓️ 4 March 2020
⏱️ 29 minutes
🧾️ Download transcript
Summary
Why most investors practice both market timing and time in the market. Why it is okay to reduce stock exposure given the coronavirus pandemic threat.
- What would a stock portfolio return that misses the best or worst days and how likely is that.
- How do rolling 30-year stock returns differ depending on the starting point.
- Why are stocks likely to outperform bonds over the next 30 years.
- What is sequence of return risk.
- What is market timing.
- Why long-term investors should never move completely out of the stock market, but it is still okay to adjust stock exposure based on market conditions.
- What are some additional rules of thumb for market timing.
- How the coronavirus pandemic has increased financial and economic risks and what to do about it.
Thanks to Policygenius and Mint Mobile for sponsoring the episode.
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Transcript
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| 0:00.0 | Welcome to the money for the rest of us. This is a personal finance show on money, how it works, how to invest it, and how to live without worrying about it. |
| 0:11.0 | I'm your host David Stein today's episode 289. It's titled |
| 0:15.1 | Market Timing versus Time in the Market. Yesterday I reduced the stock allocation in the money for the rest of us plus model portfolios |
| 0:30.3 | by 10 percentage points at least for the most aggressive models. |
| 0:35.0 | Shortly after setting out that notice I received an email from a member who wrote. |
| 0:42.0 | Aside from all the craziness in the world right now, |
| 0:45.0 | I stumbled upon an article that really shocked me. |
| 0:48.0 | Turns out, it is just one of many similar articles |
| 0:51.0 | basically stating the same thing. The article was titled |
| 0:54.5 | What Happens When You Miss The Best Days in the Stock Market? The member continued |
| 1:00.1 | Basically I'm asking if you think it's true and that the math checks out or is there |
| 1:06.0 | some kind of catch where it's not showing all the pieces of the puzzle. |
| 1:11.7 | This article was written by Michael Alloy. |
| 1:14.6 | It was published on the Motley Fool website. |
| 1:18.6 | And he referenced a study by J.P. Morgan Asset, that is included in the very well done |
| 1:26.0 | JP Morgan Guide to Retirement, their 2020 edition. On page 43 of the |
| 1:32.4 | guide it shows the impact of being out of the market for the best |
| 1:37.8 | 10 days 20 days 30 40 50 60 days and so on This is for the S&P 500, the time frame January 3, 2000 through December 31st, 2019. |
| 1:49.6 | So a 20-year time frame. Over that period, if you were fully invested, your return |
| 1:56.0 | would have been 6.06% annualized. But had you missed the best 10 days, your returns would have fallen to 2.4% annualized. |
| 2:07.8 | And the amount of money you would have made investing $10,000 at the beginning of that period would have been cut in half. |
| 2:16.1 | Had you missed the best 60 days, your return would have been 7% negative annualized, would have lost money having missed |
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