The appeal of maximizing investment returns often leads investors to try timing the market by selling before downturns and buying again before rallies. Although this approach may seem logical, especially with the help of modern trading tools, it is fundamentally flawed due to a key characteristic of the market. A significant portion of long-term gains comes from just a few exceptionally strong trading days. These outlier sessions play an outsized role in overall returns, so missing them can be extremely costly.

Quantifying the Impact: the devastating cost of missing the best days

Numerous studies, primarily using the S&P 500 index, demonstrate the severe consequences of missing the market best days. The data consistently shows that being out of the market for just a handful of top-performing days drastically erodes long-term returns.  

• A Fidelity study (1980-2022) found that missing the best 5 days cut a $10,000 investment's potential growth by 38% (from $1.08M to $671k). Missing the best 50 days slashed potential growth by 93% (to $76k).  

• Hartford Funds (1995-2024) showed missing the 10 best days cut returns roughly in half (54% reduction), while missing the 30 best days reduced returns by 83%. (Fig. 1) 

• JP Morgan (2004-2023) calculated that missing the 10 best days dropped annual growth from 9.8% to 5.6%.  

• Wells Fargo (1994-2024) found missing the 30 best days reduced the average annual return from 8.0% to 1.8%, below inflation. Missing the 50 best days resulted in negative average annual returns (-0.86%).

Missing the Market’s Best Days is Costly

If you are still unconvinced by the studies above, consider a study by Bank of America conducted going back to the 1930s. In the decades from 1930 to 2020, the stock market returned a positive result in 8 of those 10 decades. The total return for the stock market over that period of time was 17,715%. If you missed the 10 best days in each decade, the return is reduced to 28%. That’s not a typo. I didn’t forget a few digits. This again illustrates how volatile the market can be on the upside.

This consistency across different multi-decade periods suggests the concentration of returns is a fundamental market feature, not an anomaly. Missing less than 1% of trading days over decades can wipe out the majority of gains, highlighting that average days contribute relatively little compared to these positive outliers. 

The "missing the best days" phenomenon appears also consistent across international markets and this suggests it is an enduring, fundamental characteristic of equity markets driven by factors like volatility, clustering and investor behavior, rather than a localized or recent anomaly. 

The Counterpoint: Missing the Worst Days

A common critique of the "missing the best days" argument is that it overlooks the potential upside of avoiding the worst days. Studies have shown that successfully sidestepping the market’s biggest single-day losses can significantly boost returns, often even more than missing the best days reduces them. This is because of an asymmetry: historically, the largest daily losses have sometimes exceeded the largest gains. For example, one study found that over a 40-year period, avoiding just the 10 worst days could more than double returns compared to a buy-and-hold strategy. In contrast, missing the 10 best days would cut returns by about half. Another analysis showed that avoiding the 90 worst days over 30 years resulted in dramatically higher returns, while missing the 90 best days led to a severe reduction in performance. 

The problem with this approach is that accurately predicting market crashes is notoriously difficult, if not impossible. The strongest declines are often rapid and triggered by unforeseen events. Actively avoiding the worst days would require not only superhuman forecasting skills, but also the coolness to go against the grain, selling before the crash when everything is booming. History shows that the typical behavior of investors is the opposite: selling in panic during downturns, thus realizing losses that could theoretically have been avoided by exiting early. Therefore, the huge theoretical gain from avoiding the worst days remains an unattainable mirage for real investors.

The issue with timing: Volatility and Clustering

Attempting to time the market is further complicated because the best trading days often occur very close to the worst days, typically during periods of high volatility and market stress.  

• JP Morgan found 7 of the 10 best days (2004-2023) occurred within two weeks of the 10 worst days.  

• Wells Fargo noted clustering, citing March 2020 when 3 of the 30 best days and 5 of the 30 worst days (over 30 years) occurred within an 8-day span.  

• Research shows best days frequently follow worst days, sometimes immediately. 

Moreover, the vast majority of best days occur during bear markets or the early stages of recovery. Hartford Funds found 78% of best days (1995-2024) occurred during a bear market or the first two months of a bull market. Wells Fargo found all 10 best days (1994-2024) occurred during recessions.  

This clustering creates a dangerous trap: the fear driving investors to sell during downturns coincides precisely with the periods preceding the strongest rebounds. Exiting increases the likelihood of missing these crucial recovery days. Recoveries are often sharp and front-loaded, meaning missing the initial thrust significantly impacts long-term results.  

Perfect Timing

Another hypothetical market timing strategy, often discussed to illustrate its limitations, is that of “perfect monthly timing.”, which is clearly impossible to realise in practice. This strategy assumes that an investor is able, each month, to sell the entire capital invested at the precise moment when the index reaches its highest point (monthly high) and reinvest the entire amount at the precise moment when the index hits its lowest point (monthly low) within the same month.

Another study (cited as “The Dividend Prince”) analyzed monthly investments of $500 for 25 years (2000-2024). “Perfect Timing Paul” (investing at the monthly minimum) reached $785,427. “Steady Sam” (investing the same day every month, DCA strategy) reached $758,567. “Terrible Timing Tina” (investing at the monthly maximum) still reached $736,562. Again, the difference between perfect monthly timing and a disciplined strategy such as Dollar-Cost Averaging (DCA) is minimal (about 3.5 percent on the final result), and even the worst possible timing generated substantial returns compared to not investing.

Market Timing vs. Time In The Market

Despite compelling evidence of the high cost of missing the market's best days, the allure of timing the market persists, and time and again, investors try their luck.

To succeed, an investor must accurately decide both when to exit the market to avoid a decline and when to re-enter to benefit from the recovery. Missing either decision can lead to poor outcomes, often worse than simply staying invested. Research by Nobel laureate William Sharpe shows that a market timer would need to be correct about 70 to 75 percent of the time just to match the performance of a passive buy-and-hold strategy. This high level of accuracy is difficult to achieve, especially given how unpredictable markets are.

As If things were not difficult enough, investor psychology often works against successful timing. Emotional reactions such as fear during downturns can lead to panic selling at market lows, while excitement and fear of missing out during rallies can lead to buying at inflated prices. These behaviors often result in investors buying high and selling low, which again undermines long-term returns.

If you are now convinced that timing the market is a risky and ultimately unwinnable game then, unless you need access to your money any time soon, staying invested is a wise consideration!

“Time in the market” means staying invested through the ups and downs. It’s about playing the long game, letting compound growth do its work, rather than trying to outsmart the system. Strategies like dollar-cost averaging, diversification, and sticking to a plan help remove emotion from investing. They keep you disciplined, ensuring you don’t miss out when the market turns in your favor.

Key Takeaways for Investors

1. Stay Invested: Time in the market beats timing the market.

2. Invest Systematically: Use dollar-cost averaging to remove emotion from the equation.

3. Focus on What You Can Control: Your savings rate, costs, and planning matter more than trying to predict market moves.

4. Manage Emotions: Understand that fear and greed are powerful.