RICHMOND, Va. — If you’re saving for your retirement and are worried about the rocky ride the stock market has taken this year Sandy Wiggins, of ACG Wealth Management in Midlothian, has some advice.
The S&P 500 index of stocks lost nearly 24% through the end of September, and bonds — which are typically considered a safer alternative to stocks —have also suffered mightily. The main bond index, the Bloomberg US Aggregate, lost 14.6% through September.
“These are scary times for investors, especially those who are retired or plan to be in the next few years,” said Wiggins. “However, the key to successful long-term investing is to keep fear out of one’s decision making in tough times like this. Investor psychology is such both greed in good times and fear in bad times lead to overreactions and bad decisions.”
Wiggins said there are several things to keep in mind.
“First, realize that timing the market is a losing strategy,” Wiggins said. “By timing the market, we mean the act of getting out of stocks to cash or something else conservative with the expectation of getting back in when things feel better. The best demonstration of the folly of timing the market is to examine the impact on one’s return by staying invested vs. missing some number of the best return days.”
Wiggins showed a chart that revealed in the 15 years from the start of 2007 through the end of 2021, if an investor simply bought an S&P 500 index fund, and never sold it during that time period, their annualized return would have been 10.66%.
But he pointed out that if you stayed out for a period of time because of fear, you missed out on a better return.
“By contrast, missing the 10 best days in that 15-year stretch more than cut their return in half, to 5.05%,” said Wiggins. “Missing the 20 best days brought it to only 1.59% per year and missing the 30 best days, led to a negative return of -1.18%.”
Wiggins also said the big problem with trying to time the market, by getting in and getting out periodically, is that the best days tend to cluster around the worst ones, and more often than not, they come after them.
In 2022 alone, through September, five out 10 of the best days for the S&P 500 occurred within a week following one of the 10 worst days.
So have an investing plan, and let it ride, said Wiggins.