Hello, my name is Chad Taylor, managing partner with MDT Financial Advisors here in Houston, Texas.

Today I wanted to go over a new report that we just put out, and by we, I mean the Wells Fargo Investment Institute just recently put out that talked about market timing and timing of specifically the stock market or the s and p 500 is difficult, and I know we've covered this a number of times through the years, but they just kind of gave some updated data and actually a new stat that I found quite interesting and I thought you would as well. So let's just jump right into it. I want to look here at chart number one. If you can see that here, where this is the old, this is something that we've shown you many times in the past where it just talks about the average equity investor return is here versus the s and p 500 being here. And this report is from 1993 to 2022. And how just the s and p 500, the index does better than most equity fund investors and why is that? Well, we're human and we just make mistakes. We sell when we shouldn't have sold. We bought when we shouldn't have bought versus just kind of buying and holding of the index as a whole. Most people, we get emotional about it and we make those decisions, and so just the average is 6.8 versus 9.65 over that timeframe. So this is nothing new. We've always kind of seen that.

Now, why Then we come to chart two here and we talked, and this is something we've talked about before as well, but missing certain numbers of days. So this chart was from 1994 to the end of January, 2024, and it talked about the s and p 500 annualized 30 year return. In this case, what it was 8%, that's right here to your left. During that 30 years, if you missed the 10 best days, it drops to 5.26. You can see 20 best days, 20%, 3.4 30 best days, 1.83 missed the 40 best days. You were still positive but not quite. And then if you missed the 50 best days, you were negative 50 days out of 30 years. If you miss those, there again, this is a study and that would be hard to do, but the point of it is that 50 days made up a huge difference in the return of the portfolio over time.

That's always kind of eye opening to me. But what was kind of interesting is this chart here, you say, well, I probably won't miss the 50 best days, but usually the 50 best days are kind of coupled with the worst days. And so that's what this chart shows. I think we're talking about the 30 best days and the 30 worst days of the market over that same timeframe. And you can see under this scenario, here's the 2000 to 2002 market, the tech bubble. Here's the great financial crisis here. Here's the covid market here. But you can see most of the good days are coupled right along with the bad days, in some cases consecutive days. So you've got good days and bad days all wrapped into one and trying to time that is very difficult. And so that's the hard part. You say, well, I probably won't miss the worst days or the best days, but you've got the worst days going along the same lines too.

So that kind of says sometimes it's better to just kind of ride out those storms. Now keep in mind what I'm talking about here is just the stock market. A lot of balanced portfolios don't have all of your money in the stock market. You may have 50% of your money in the stock market and the other 50% in the bond market or the cash market, or 60% in the stock market, 40% in the cash markets. But this is an illustration of trying to time the stock market. So usually good days are kind of coupled there with the bad days. Now, this was interesting to me and this was different, this chart number four here, what happens if you're able to miss the best days and miss the worst days? Because like I said, they're kind of coupled together in a lot of cases. What happens to your return in that case if you were able to miss some of those bad days?

Well, if you miss the 10 best and 10 worst, your return actually goes up 20 up, 30, up, 40 up, 50 up, not much. But that shows that if you are able to know when those recessions are going to happen and those bear markets are going to happen, if you can miss them all, it doesn't hurt your performance. Now is that able to do this? Think about what we've been going through the last two years since early 2022.

Everybody on news media, our research have been talking about a possible recession and we still haven't had one. So two years now we've been talking about it, but it hasn't come. And those are people that watch the markets every day. So timing is still difficult, but it kind of leads to what most of us have talked about that making small changes or tactical changes when things are volatile may not hurt, and this study kind of shows that it could possibly help.

So those are things to think about. If you have any questions about this or anything else, please let us know and we look forward to talking more.

I hope you have a great day.



© 2022 Wells Fargo Clearing Services, LLC. All rights reserved.

FINRA’s BrokerCheck Obtain more information about our firm and its financial professionals

FINRA’s BrokerCheck Obtain more information about our firm and its financial professionalsX