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“It was the best of times, it was the worst of times.” With these classic words, author Charles Dickens opened his historical novel “A Tale of Two Cities”.
He could easily have described the stock market.
New analysis from Wells Fargo has examined the top 20 days for the S&P 500 between August 1992 and July 2022. Nearly half of them, according to the investment bank, occurred during a bear market.
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During the Great Recession on October 28, 2008, the index jumped almost 11%. On March 24, 2020, amid the downturn of the coronavirus pandemic, the S&P 500 rose 9%. (For perspective, the index’s average daily return over the past two decades is around 0.04%, according to Morningstar Direct.)
“During extreme market events, like the credit market crash in 2008 or the onset of the pandemic in 2020, markets don’t digest this kind of news in an instant,” said Douglas Boneparth, Certified Financial Planner. and founder. of the financial services company Bone Fide Wealth in New York.
“We don’t usually know how this is all going to play out,” he added. “That’s why you see massive amounts of volatility and bad days clustered with good days.”
The results underscore the impossibility of timing the market, with bears and bulls being so mixed.
“The odds of picking the right days to be in or out of stock are much lower than winning the Powerball,” said Allan Roth, CFP and founder of Wealth Logic in Colorado Springs, Colorado.
The best market days can have a long-term impact
Indeed, very good days in the market are incredibly rare.
In the past 20 years or so, there have only been two days when the S&P 500 has risen more than 10%, Morningstar Direct found. Meanwhile, the return was over 5% in just 16 days.
“Missing those best days can impact long-term performance,” said Veronica Willis, investment strategy analyst at Wells Fargo Investment Institute.
Here’s an example to prove Willis’ point: Imagine that on October 13, 2008, you had a $300,000 investment in the S&P 500. The market rose 11.6% that day.
In the evening, you would have won almost $35,000.
It’s impossible to know when these infrequent jumps will occur, so experts have recommended trying to stay consistently invested for decades.