Financial Planning / The Compound Effect
In Times Like These, Keep Your Money Working
| 4 min | By Heath J. Harris
Missing the ten best days in the market over twenty years cuts your ending balance roughly in half. The hardest part is that those days hide near the worst.
Forty days. Out of roughly five thousand trading days in the last twenty years. That is what it would have taken to turn the best-performing major asset class in modern history into a portfolio that lost money.
We get a version of the same client call every time the market gets loud. The chest tightens, the headlines escalate, and the question comes through in the most reasonable language possible: should we just step aside for a few weeks until this clears? It is not a stupid question. It is a human one. It is also the question that has cost more retirement portfolios more money than any single product or fee in the history of investing.
Here is the math that we think every serious investor should commit to memory.
JPMorgan Asset Management's Guide to the Markets runs an analysis we revisit every year. They take a $10,000 investment in the S&P 500 over a twenty-year window and ask a simple question: what happens to your ending balance based on how many of the best days you missed?
Over the twenty years ending December 30, 2022, a $10,000 portfolio that stayed fully invested grew to roughly $64,844. That is an annualized return of about 9.8%.
The same $10,000, with the ten best days missed, finished at about $29,708. The annualized return drops to roughly 5.6%. More than half of the ending balance was gone.
Miss the twenty best days and you finish at around $17,826. Miss the thirty best days and you finish at $11,701, which is barely more than you started with. Miss forty days over twenty years and you finish underwater, at $8,048.
Forty days. Out of roughly 5,000 trading days. That is what it takes to turn a market that historically rewards patient capital into a portfolio that lost money.
Where the best days hide
The trap is not just that the best days are powerful. It is where the best days hide.
In that same JPMorgan analysis, seven of the ten best days happened within fifteen calendar days of the ten worst days. They sit on top of each other. The big up day arrives when the headlines are still screaming, when the chart still looks broken, when nobody on the news is telling you it is safe yet. The investor who got scared into selling on the worst day is almost guaranteed to be in cash for the best day. That is not a fluke of any particular cycle. That is the texture of every cycle we have studied.
What disciplined actually looks like
So the discipline is not glamorous. It does not look smart on a Tuesday afternoon when the S&P is down two percent and the bond market is doing something strange. It looks like this:
- We do not raise cash because the news got loud. We raise cash on a schedule, against a known liability.
- We rebalance into weakness. When stocks fall harder than bonds, we sell bonds and buy stocks. We are net buyers of fear, not net sellers.
- We separate the money that pays the bills in the next 24 months from the money that grows for the next twenty years. The first bucket should never have been in equities. The second bucket should never have been in cash.
- We write the plan down in a quiet moment so we can read it back in a loud one.
For now, the work is to keep the money working.
If you are a client and you are reading this with a tight chest, that is the moment to call us before the moment to email your custodian. We have run the numbers on your plan. The plan is built for this. The plan assumes weeks that look like this one. Weeks that look like this one are the price of the long-run return that the plan depends on.
So we keep the light on.