In the past, advisors would advise their clients that to make money, it was best to have “time in the market” versus timing the market. But, the brutal bear market of 2008 prompted new research that shows it may be best to avoid big losing days rather than going long 100 percent of the time.
In yesterday’s New York Times business section, Money magazine writer Paul J. Lim wrote that timing the stock market is the wrong way to try to make and preserve capital gains. Best to stay fully invested, lest you miss out on big gain days. He wrote: “This year offers a perfect example. From March 9, when the rally began, to Dec. 17, the S.& P. advanced nearly 65 percent. But if you sold out of your stocks during the 2008 downturn and came back into the market less than a month after the rally started — say, on April 1 — you would have earned a 37 percent return.
“In other words, you would have missed out on 40 percent of your potential gains.
“And if you were two months late in timing the rebound and came back into the market on May 1, you would have missed out on almost 60 percent of your potential gains for 2009.”
But as our own mutual fund correspondent Stan Luxenberg wrote last week, avoiding the worst trading days is a far better strategy to preserve wealth. Of course, as many have learned, timing the market --- going in and and out in an effort to avoid big down days --- is easier said than done.