INVESTORS ARE OFTEN told that it’s impossible to consistently time the market. To do so successfully requires you to make two correct decisions: when to get out of stocks—and when to get back in.
In 2022, J.P. Morgan published a study showing that a lump sum invested in the S&P 500 over the 20 years through 2020 would have earned an annualized return of 5.2% if you’d missed the 10 best days, versus 9.4% if you’d stayed invested throughout the period. Miss the 30 best days, and your annualized return would have dropped to 0.32%.
Unfortunately, I may have suffered something similar.
I’m very much a buy-and-hold investor. The vast majority of our portfolio is in index funds that we’ve owned for decades. In the past, I’ve written about the few individual stocks that we own. We’ve also held these positions for decades.
I retired two years ago. Earlier this year, I thought that it was finally time that I roll over my 401(k) to my IRA. Some people make this switch because the funds in their employer’s 401(k) charge higher fees than are available in an IRA. Fortunately for me, that was not the case. My previous employer had consistently done a good job of minimizing costs. Instead, I wanted to reduce the number of financial institutions that my wife or other heirs will have to deal with after my demise.
Although I could initiate the rollover electronically, I was surprised that both firms in the transaction wanted to use a paper check. A wire transfer wasn’t an option. On top of that, a check made out to the IRA sponsor would be sent to me, and I was then responsible for forwarding it.
The only reason that I can fathom for doing it this way: Both firms wanted me to look at the check and make sure it was going to the right account. This could prevent any misunderstandings, such as having a traditional 401(k) rolled over into a Roth IRA, thereby triggering a large tax bill.
The upshot: I ended up being out of the market for 21 days, even though I sent the check for next day delivery when it reached me. During those 21 days, my portfolio would have gone up 4.9% had it been fully invested.
I do believe markets are random in the short term. If the investments I sold and then repurchased fell 4.9% during those 21 days, I’d have been singing the Hallelujah chorus. Instead, I feel a bit like Emmett Kelly’s character Weary Willie. Still, there are lessons here for readers: You can’t time the market—and sometimes you find yourself out of the market even when you don’t want to be.