Bad Timing Hurts!
The stock market has surged upward recently, just as more money is held uninvested in cash than ever before.
Whether you missed the advance, or not, make sure your bank is paying appropriately on your savings. Although "cash" money market funds are paying some of their highest yields in 16 years, you can't assume your savings automatically receive a higher rate. Read more: Is Your Bank Underpaying On Your Savings?
The Stress of Missing Out
The perceived safety of cash can be appealing. However, investors seeking to ease their stress might be surprised to find that they are just trading one form of anxiety for another.
Moving to cash (or bonds) and watching markets surge in value can cause investors just as much anxiety. Bad timing when markets surge can cause profound damage, as shown by this hypothetical investment in a broad US stock market benchmark1.
A hypothetical $1,000 investment made in 1998 turns into $6,356 over the 25-year period.
- Miss the best week, and the value shrinks to $5,304.
- Miss the best three months, and you've experienced the effect of an average recession, behind some -29% to $4,480.
- Miss the best six months, and the total return falls -35% to $4,125.
Missing The Best Consecutive Days
Russell 3000 Index Total Return, 1998-2022
The perceived "safety" can become a siren song, wrecking investors upon its rocky shore.
If we can help personalize these ideas to you, reach out anytime. Call us at (775) 827-0670 or schedule a 'Quick Connection' time at www.openwindowFS.com/connection.
Past performance is no guarantee of future results. Indices are not available for direct investment. Their performance does not reflect the expenses associated with the management of an actual portfolio.
Content provided by Dimensional Fund Advisors, LP and adapted by Open Window Financial Solutions, Ltd.
1 - Broad US stock market benchmark represented by the Russell 3000 Index. Frank Russell Company is the source and owner of the trademarks, service marks, and copyrights related to the Russell Indexes.
In USD. For illustrative purposes. Best performance dates represent end of period (November 28, 2008, for best week; April 22, 2020, for best month; June 22, 2020, for best three months; and September 4, 2009, for best six months). The missed best consecutive days examples assume that the hypothetical portfolio fully divested its holdings at the end of the day before the missed best consecutive days, held cash for the missed best consecutive days, and reinvested the entire portfolio in the Russell 3000 Index at the end of the missed best consecutive days.