Should I take money off the table? It’s a natural question every time stocks hit a valley or peak.
But timing markets often lead to bad results. Stepping to the sidelines when stocks plumb new lows often means missing the rebound. And moving to cash to preserve gains when stocks hit new records can mean missing out when markets had more room to run.
Resisting the urge to time markets is one of the most important things advisors can do to help their clients achieve better investment outcomes. Let us help you. When markets hit inflection points in either direction, we like to provide you – the advisor – with stats and factoids that will keep your client fully invested, just like we manage our own portfolios.
Soon after stocks bottomed in 2020, we provided a series of stats aimed at keeping your clients invested when markets were volatile. Now, with the S&P 500 hitting new records in September, we wanted to provide stats to keep investors from trying to time the top of the market. These show how many times markets can keep hitting highs, and how much investors would have missed if they pulled out of stocks at what looked like a high milestone. We hope these help:
- The S&P 500 reached its pre-COVID peak in mid-August of 2020. If investors thought that rise was too fast and pulled out of markets at that time, they would have missed an additional 33.7%1 of gains by September 10 of this year.
- Another important point to remember is that record highs happen more frequently than investors often realize, and shouldn’t be used as a market signal. For example, this calendar year alone, the S&P 500 has reached 542 new highs!
- Finally, other milestones also would have proved premature to move to cash. For example, when the bull market that began after the financial crisis hit its 10-year anniversary, many questions whether it was long in the tooth. But had an investor pulled out of stocks then, they would have missed a 69.8%3 total return from March 9, 2019 to September 10.
Where do stocks go from here?
At Dana, we readily admit – we don’t know for sure. Our funds’ investment policies call for being fully invested because we realize we are better at picking stocks than timing markets. We urge clients to stay invested too.
We’ve seen some negative economic data points lately, such as lower airline traffic, that could suggest the Delta variant is causing a pause on some economic activity. But economic cycles often have ebbs and flows, so we would be hesitant to make a prediction that the economy is headed down and stocks will follow.
Similarly, recent headlines of high steel prices and rising shipping costs provide fresh data points that we could be in an inflationary environment. While that fear gripped stocks at points in recent months, it doesn’t necessarily spell doom for the economy or markets. A reasonable amount of inflation that gives companies cover to raise prices – and revenues – can be healthy.
In our view, the best course of action is to stay invested, and not try to predict what is next. We said this at the bottom of the market after the pandemic, and believe the same thing when stocks hit new highs.
1 Source: Morningstar
2 Source: Fact Set Research Systems
3 Source: Morningstar