Why you shouldn’t time the market

The number crunchers at Fidelity International have looked at the effects of missing the best and worst days in the UK stock market over the past 30 years. They concluded that time in the market is better than timing the market.

An investor who invested £1,000 in the FTSE All Share index 30 years ago and stayed in the market the whole time would have investments worth £14,733. But if they had missed the best 10 days in the market since, they would have ended up with a total investment of £7,811 – a loss of £6,922.

Tom Stevenson, investment director for personal investing at Fidelity International says: "With the FTSE 100 recently falling 19% below the cyclical high of 7122.74 reached last April, investors will be unsettled.

“However, it should be remembered that volatility is the price you pay for the long-term outperformance of equities over other asset classes. Corrections often provide investors with an opportunity to add to their portfolios at attractive prices.

“That said, our analysis shows the risks of trying to time the market and how expensive it can be when you get it wrong. “

Moneywise also asked Fidelity to supply what would have happened if the investor had missed the 10 worst days. In this case, the investment would have increased to £31,268 over the same 30 year period. That would have been an gain of £16,535, which shows that perhaps if investors do try to time the market, their focus should be on reducing the downside. It’s all rather theoretical though.

“It’s difficult to predict the best time to be in and out of the market, especially as the best and worst days very often tend to be bunched together during periods of heightened volatility,” says Mr Stevenson.

“It’s usually more prudent to stay fully invested through market cycles as missing even a handful of the best days in the market can seriously compromise your long-term returns. As the old stock market adage goes; time in the market matters more than timing the market.”