Article

Wondering Whether You Missed the Recovery?

Wondering Whether You Missed the Recovery Image

Some investors are confident that they can time it perfectly and snap up equities when prices are low and shift into cash or bonds when the market hits its peak. But investors run a big risk by selling when they believe stocks have reached their peak. They may turn a profit when cashing in their equity holdings, but they could also miss out on some of the market’s best cycles. Being absent from the market for only a few of the days or weeks with the highest percentage gains can decimate a portfolio’s returns over time.

October 19, 2020
Wondering Whether You Missed the Recovery Image
Important Disclosure: Content on our website and in our newsletters is for informational purposes only. The information provided may (or may not) directly apply to your situation. We recommend that readers work directly with a professional advisor when making decisions in the context of their specific situation.

It is only natural that investors would want to find some way to sit out bear markets and get back just in time for the next bull run. The belief that you can foresee the direction of the stock market is a seductive one.

Some investors are confident that they can time it perfectly and snap up equities when prices are low and shift into cash or bonds when the market hits its peak. But investors run a big risk by selling when they believe stocks have reached their peak. They may turn a profit when cashing in their equity holdings, but they could also miss out on some of the market’s best cycles. Being absent from the market for only a few of the days or weeks with the highest percentage gains can decimate a portfolio’s returns over time.

Market timers who sell frequently also lose money to transaction costs and taxes and miss out to a large extent on the compounding effect that benefits investors who remain in the market consistently. Instead of trying to time the market, most investors are generally better off taking a buy-and-hold approach – but with the right investments.

Gains in Year One

Looking at the distribution of market gains coming off of the past 7 bear market cycles, we see that on average, 64% of the gains were captured in the first 6 months of year one. But that’s not to say that gains were absent in the next 6 months – the gains just slowed down.

Bear Market BottomGain in 1st Year of ReboundPercent Gains, First 6 MonthsPercent Gains, Last 6 Months
197032%13%87%
197438%90%10%
198259%66%34%
198723%80%20%
199031%92%8%
200232%31%69%
200971%73%27%
202047%??
Average41%64%36%

Source: S&P 500 total returns, Morningstar. Past performance does not guarantee future results. 2020 return period from March 23, 2020 through September 25, 2020

Will 2020 be Different?

No one knows. But consider that coming off of the 2020 bear market bottom, the S&P 500 returned 47% from March 23rd to September 25th. Maybe in another six months we will look back and recognize that those first 6 months off of the 2020 bear market bottom captured 92% of the gains, just like what happened in 1990.

Or maybe we will realize that those first 6 months only captured 31% of the gains, like in 2002.

Where Should You Go from Here?

Trying to pinpoint the exact right time to invest in the stock market is an exercise in futility. If you have a longer period to invest, owning equities provides one of the most effective hedges against inflation and taxation available. Since it is impossible to know where the market might go from here, it makes sense to start investing now and continue investing on a regular basis, regardless of market conditions.

Remember: long-term investment success is achieved not by timing the market, but by time in the market.

Other content you may like

  • AUG Student of the Market

    So Goes July, So Goes the Rest of the Year?

    August 23, 2022
    With a good Market showing in July, what are the historical trends for the 6 months following? Now throw in mid-term elections and this month’s overview of market performance gets very interesting. Also included are past trends for stock performance during recessions and a quick look at a couple of inverted yield curves.
    Read this Article
  • Student of the Market

    Bond Returns After A "Worst" Start

    June 23, 2021
    2021 had the 4th worst start for bonds. This Student of the Market looks at how “Worst Starts” bounce back historically. Combine this with the stats on the 3rd best start for value stocks. Also included are insights for cash on the sidelines, equity fund assets, investing signals, and recent inflation basics.
    Read this Article
  • Podcast Highlight - Our Team Predictions

    March 21, 2024
    The Strong Valley Team finishes up their Mid-Quarter Roundtable with the fun part - admitting to their predictions from the prior quarter and jumping in to predict the coming quarter with their insight and observations.
    Read this Article
  • Which Way is Your Household GDP Trending?

    Which Way is Your Household GDP Trending?

    December 14, 2021
    The Gross Domestic Product (GDP) is a number followed closely by Wall Street and economists, to determine the overall economic health of our country. This macroeconomic data is most useful when viewed through your own filters. Have you considered calculating your household’s GDP to determine your economic health?
    Read this Article
  • The link you have selected is located on another server. The linked site contains information that has been created, published, maintained, or otherwise posted by institutions or organizations independent of this organization. We do not endorse, approve, certify, or control any linked websites, their sponsors, or any of their policies, activities, products, or services. We do not assume responsibility for the accuracy, completeness, or timeliness of the information contained therein. Visitors to any linked websites should not use or rely on the information contained therein until they have consulted with an independent financial professional. Please click “Continue to Link” to leave this website and proceed to the selected site.
    phone-handset