The Cost of Not Staying Invested
I received some wonderful statistics from Dimensional Fund Advisors which helps demonstrate the importance of “sitting on one’s hands”. Specifically, the annualized compound return of the S&P/TSX Composite Index from January 1st, 1980 until December 31st, 2007 was 10.53%. This is a pretty healthy rate of return and remember this is over 28 years, nearly three full decades, but does not include transaction costs or fees. (Note: all figures and numbers in this example is gross of fees and commissions)
However, the compounded return of the index drops to only 6.71% if you missed the best 25 days on the market during this 28 year time frame.
(Click on the graph for a larger view)
Let’s put this into perspective:
If you had invested $100,000 and earned 10.53% for 28 years you would have $1,649,851.14.
If you had invested $100,000 and earned 6.71% for 28 years you would only have $616,230.74.
If we assume that there are approximately 250 trading days in the year, then this works out to 7,000 total trading days over this 28 year period. Simply missing the best 25 days on the market for the last 28 years cost you over $1 million!
There have been many bear markets in the last 28 years, but those who remained invested (even in the bad times) were rewarded over the long term.
The S&P/TSX data are provided by S&P/TSX. T-bills provided by Scotia Capital Inc. Indices are not available for direct investment. Their performance does not reflect the expenses associated with the management of an actual portfolio. Past performance is not a guarantee of future results. Values change frequently and past performance may not be repeated. There is always the risk that an investor may lose money.
