Investment tactics & market timing: Who has the crystal ball?

Those who can anticipate when the markets will go up and down will become rich. We document this in the chart of the week.

Anyone who invested USD 10,000 in the US stock market – represented by the S&P 500 Index – on January 1, 2003 and left it there until September 30, 2024 («buy and hold») will have increased their assets tenfold in this period.

Excluding the 10 worst days on the stock market during this long period, however, the final assets already amount to CHF 237,883. In other words, the investor with the magical crystal ball that reliably shows on which days the stock markets will dive could increase their assets by a factor of 23.

But watch out: if you miss the 10 best stock market days, the final value is only CHF 46,000 and therefore less than half as much as if you had simply left the equity portfolio untouched.

To make matters worse, the bad and the good days often follow each other in close succession – as illustrated in the chart of the week for the financial crisis and the coronavirus crisis.

This leads to the crucial question: do you trust yourself to avoid the bad stock market days and not miss the good ones?

Transaction costs have not yet been taken into account. If you constantly rotate your portfolio in an attempt to catch the right moment, this will cost you – once out and once back in – at least half a percent of the transaction volume.

Finally, actively participating in the market and trying to catch the right timing may release a thrilling adrenaline rush for some people. However, it does not serve long-term balance.

There is therefore much to be said for carefully determining your investment strategy and then implementing it in a disciplined, cost- and tax-efficient manner. Economico supports you in this.