Miss the 10 best days in the market and you've missed most of the gains

There's a statistic I come back to whenever markets get noisy. According to J.P. Morgan Asset Management's analysis of the S&P 500 over the 20 years from 2003 to 2022, an investor who stayed fully invested earned around 9.8% a year. An investor who missed just the 10 best trading days in that period earned around 5.6%.

Ten days out of roughly 5,000. That's the difference between your money growing about sixfold and roughly tripling.

Why this happens

The best days in the market rarely arrive during calm, comfortable periods. They tend to cluster around the worst ones. In the same analysis, seven of the ten best days came within two weeks of one of the ten worst days.

That's the problem with trying to step out "until things settle down". The moment things feel most frightening is often right before the sharpest recoveries. Selling after a big fall and waiting for confidence to return usually means buying back in at higher prices, having missed the rebound.

What this doesn't mean

It doesn't mean markets only go up, or that you should be fully invested in shares regardless of your circumstances. Money you need in the next year or two arguably shouldn't be in the stock market at all, because you may not have time to wait out a fall.

What it does mean is that, for long-term money, the biggest risk often isn't the market falling. It's your own reaction to the market falling.

A more useful question

Instead of asking "is now a good time to invest?", it's usually more useful to ask whether your investments match when you'll actually need the money. If they do, short-term drops become something to sit through rather than something to react to.

Past performance is not a guide to future returns, and the figures above refer to a US index over a specific period.

Common questions

Why is it so hard to avoid missing the market's best days?

The best days tend to cluster around the worst ones. In J.P. Morgan's 2003 to 2022 analysis, seven of the ten best days came within two weeks of one of the ten worst days, so selling after a fall often means missing the rebound.

Does this mean all my money should be invested in shares?

No. Money you may need in the next year or two arguably shouldn't be in the stock market at all, because there may not be time to wait out a fall. The point is to match investments to when you'll actually need the money.

Do past returns show what will happen next?

No. Past performance is not a guide to future returns, and these figures refer to one US index over one specific period.