Snapshot - Market News
The '£17,051 cost' of mistiming your investments
When markets fall the natural instinct is to sell. Our research highlights how costly it can be to miss the stock market’s best days.
Buying low and selling high is every investor’s goal. However, timing the market precisely is notoriously difficult, if not impossible.
Research undertaken by Schroders shows how costly it can be when the timing is wrong.
Over three decades, mistimed decisions on an investment of just £1,000 could have cost you more than £17,000-worth of returns.
Our research examined the performance of three indices that reflect performance of the UK stock market – the FTSE 100, the FTSE 250 and the FTSE All-Share.
If at the beginning of 1988 you had invested £1,000 in the FTSE 250 and left the investment alone for the next 30 years it might have been worth £23,800 by the end of 2018. (Bear in mind, of course, that past performance is no guarantee of future returns).
However, if you had tried to time your entry in and out of the market during that period and missed out on the index’s 30 best days the same investment might now be worth £6,749, or £17,051 less, not adjusted for the effect of charges or inflation.
In terms of annualised returns, over the last 30 years you could have made:
- 11.1% if you stayed invested the whole time
- 9.1% if you missed the 10 best days
- 7.8% if you missed the 20 best days
- 6.6% if you missed the 30 best days
The 2% difference to annual returns between being invested the whole time and missing the 10 best days doesn’t seem much but the effect builds up over time, as shown in the table below. If you had invested in the FTSE 250 it could have cost you nearly £10,000 during that time.
When observing returns over long periods, investors should also bear in mind that markets can be volatile, with many ups and downs during the timespan.
The chart below illustrates what £1,000 invested in the FTSE 250, the FTSE All-Share or the FTSE 100 at the start of 1988 might be worth now if you had left the investment alone (orange bar), missed the market's best 10 days (magenta bar), missed the best 20 days (purple bar) and missed the best 30 days (green bar).
Timing the market vs time in the market: What £1,000 could now be worth
Please remember that past performance is not a guide to future performance and may not be repeated. The value of investments and the income from them may go down as well as up and investors may not get back the amount originally invested.
Source: Schroders. Refinitiv data for the FTSE 100, 250 and All Share total return indexes, which includes dividends.
Nick Kirrage, a fund manager on the Schroders value investing team and a blogger on the Value Perspective, said: “You would have been a pretty unlucky investor to have missed the 30 best days in 30 years of investing, but the figures make a point. The point is that trying to time the market can be very, very costly.
“Investors are often too emotional about the decisions they make: when markets dive, too many investors panic and sell; when shares have had a good spell, too many investors go on a buying spree.
“The irony is that historically many of the stock market’s best periods have tended to follow some of the worst days, as shown in previous Schroders research.
“It’s important to have a plan of how long you plan to stay invested, with that plan matching the goals of what you’re trying to achieve, be it money for retirement or your children’s university education. Then it's just a matter of sticking to it - don't let unchecked emotions derail your plans."
Speak to a financial advisor if you are unsure as to the suitability of your investment.
- Schroders has devised an investIQ test that measures emotional biases. It aims to make investors more aware of their behavioural traits so they can make better decisions. Take the test.
The opinions contained herein are those of the author and do not necessarily represent the house view. This document is intended to be for information purposes only. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations. Information herein is believed to be reliable but Cazenove Capital does not warrant its completeness or accuracy. No responsibility can be accepted for errors of fact or opinion. This does not exclude or restrict any duty or liability that Cazenove Capital has to its customers under the Financial Services and Markets Act 2000 (as amended from time to time) or any other regulatory system. Cazenove Capital is part of the Schroder Group and a trading name of Schroder & Co. Limited 12 Moorgate, London, EC2R 6DA. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. For your security, communications may be taped and monitored.