Why you may miss the market’s best days if you sell amid high volatility
As conflict between Russia and Ukraine continues to send shock waves through the markets, many investors may be questioning what, if anything, they should do next.
The most common advice is to stay the course.
That can be difficult on days like Tuesday, when fresh losses prompted both the Dow Jones Industrial Average and the S&P 500 Index to fall deeper into correction territory.
Yet those who held on were greeted with sharp gains on Wednesday that helped both of those indexes break a four-day losing streak.
This is actually a pattern, it turns out. The market’s worst days tend to be followed by its best days, according to research from J.P. Morgan Asset Management.
If you sell when the markets hit the skids, you’ll likely miss the upside.
“We often feel like we can take control of the markets by selling out of them,” said Katherine Roy, chief retirement strategist at J.P. Morgan.
“As a result, you lock in those losses and you really are likely to miss some of those best days that are going to follow very shortly thereafter,” she said.
According to J.P. Morgan’s analysis, the 10 best days over the past 20 years occurred after big declines amid the 2008 financial crisis or the 2020 pullback during the onset of the Covid-19 pandemic.
Had someone invested $10,000 in the S&P 500 on Jan. 1, 2002, they would have a balance of $61,685 if they stayed the course through Dec. 31, 2021.
If instead, they missed the market’s 10 best days during that time, they would have $28,260.