03.08.2020 11:51:08

Schroders: The true cost of ill-timed investment decisions

Schroders: The true cost of ill-timed investment decisions

David Brett
Investment Writer

There have been some jaw-dropping moves in stock markets since the turn of the year and the outbreak of the Covid-19 pandemic.

A near 11-year record bull-run for US stocks came to an abrupt end in early February. What followed was the shortest and sharpest correction in stock market history as economies shut down.

Quick action taken by governments and central banks to support the global economy soon saw a rapid bounce back.

Timing the market

The volatile swings have presented opportunities, tempting some investors to try to buy when the market was at its low and sell when it bounced back.

However, timing the market is notoriously difficult.

Schroders research shows that, even over a short period such as the last six months, trying to time the market could have proved costly. This is because some of the biggest market moves - in either direction - often happen in just a few days. Whether or not you are invested on those days plays a big part in determining the outcome.

An investment of $1,000 on 1 January 2020 and left alone, even as markets swung wildly, would have been worth $1,012 by 17 July.

However, if you had tried to time the market and missed the 10 best days, the same investment would now be worth $574.

Time in the market

The last three decades have seen some of the biggest stock market crises in history.

The dot com bubble, the global financial crisis and now the pandemic have all caused huge volatility in markets.

Mistimed decisions during that period on an investment of $1,000 could have cost you nearly $14,000-worth of returns.

If in 1990 you had invested $1,000 in the S&P 500 and left the investment alone for the next 30 years it would now be worth $17,074. (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 would now be worth $2,934, or $14,139 less.

Nick Kirrage, a Fund Manager, Equity Value, 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 timing 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 for how long you intend 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."

You can find more Insights articles here: https://www.schroders.com/de/ch/asset-management/insights/

Important Information: This communication is marketing material. The views and opinions contained herein are those of the author(s) on this page, and may not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds. This material is intended to be for information purposes only and is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. It is not intended to provide and should not be relied on for accounting, legal or tax advice, or investment recommendations. Reliance should not be placed on the views and information in this document when taking individual investment and/or strategic decisions. Past performance is not a reliable indicator of future results. The value of an investment can go down as well as up and is not guaranteed. All investments involve risks including the risk of possible loss of principal. Information herein is believed to be reliable but Schroders does not warrant its completeness or accuracy. Some information quoted was obtained from external sources we consider to be reliable. No responsibility can be accepted for errors of fact obtained from third parties, and this data may change with market conditions. This does not exclude any duty or liability that Schroders has to its customers under any regulatory system. Regions/ sectors shown for illustrative purposes only and should not be viewed as a recommendation to buy/sell. The opinions in this material include some forecasted views. We believe we are basing our expectations and beliefs on reasonable assumptions within the bounds of what we currently know. However, there is no guarantee than any forecasts or opinions will be realised. These views and opinions may change. The content is issued by Schroder Investment Management Limited, 1 London Wall Place, London EC2Y 5AU. Registered No. 1893220 England. Authorised and regulated by the Financial Conduct Authority.

Bildquelle: Schroders

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