You have heard it all before. Investing is actually easy – buy low and sell high. Individual investors who tried this themselves will have anecdotes of success using this approach, but figures show that emotional decisions about when is the best time to buy or sell have more often resulted in losses.
However, data shows that not reacting to adverse market conditions is usually the best approach. In short: do nothing.One of the oldest catchphrases you’ll hear about investing is that you can’t time the market. The lesson here is that while you might want to get out of a declining market before your portfolio loses more value, there’s no way to know when exactly to buy back in again. Time in the market is always a better approach than timing the market.
Take, for instance, this graph that shows the impact on the average returns on the S&P 500 between 1993 and 2022. According to the data, 52% of the best 50 trading days over this period occurred in a bear market. The rest of the best trading days happen in the first two months of a bull market , with the remainder of a bull market accounting for 22% of the best trading days.