The past couple of weeks have been interesting. As September was ending, major global indices hit new lows while Treasury yields spiked to levels that we haven’t seen since the Global Financial Crisis of 2008 in reaction to the U.S. Federal Reserve’s continued talk of continuing to increase interest rates through the end of 2022 and into 2023. As October started, we saw a potential “Halloween rally” as global markets rallied between 5% to 7% in a few days.

Here's the latest forecasts from Manulife’s Co Investment Strategist Macan Mia:

Despite the renewed volatility, patient long-term investors can take advantage of the selloffs. While there may be continued short-term volatility and additional downside risk, it’s impossible to time the bottom. We are more positive today than at any time in 2022. We believe there’s a lot more certainty regarding inflation, interest rates, and the health of the global economy.

While in the middle of the storm it’s hard to see that clearer weather is ahead, we believe we’re much closer to the end of this bear market and that patient investors are likely to be rewarded. Remember, the opportunity cost for investors to reach their financial goals is NOT protecting against the potential of another 5% to 10% downside from these levels, but rather missing out on the next bull market that happens after each bear market.

Here is a great video they produced about why we invest in the stock markets. Take a look:

·      Why do we invest?

·      Time in the markets vs timing the markets – Is there any truth to this investment adage? We look at the data to find the truth—commentary is below.

Time in the markets vs Timing the markets

Everyone has heard it at some time, as it may be one of the most-used investing quotes. It appears to be sound advice, but actually, the data suggests otherwise—historically timing the markets yields superior returns.

Since the Global Financial Crisis, the average return for the S&P 500 Index on a calendar-year basis has been approximately 14%. If you missed the 10 best trading days, your average return was approximately –10%. If you missed the 10 worst trading days, your return would’ve skyrocketed to nearly 52%!

The challenge is that there’s no consistent strategy as to when to get in and out of the markets.

The distribution of worst vs best days makes it hard to execute.

As reported by Bloomberg, in 2020, apart from two data points, the best 10 days (returns between 3.4% to 9.4%) and worst 10 days (–3.5% to –12%) all occurred during March and April and were intermixed. In 2011, apart from one data point, the best and worst 10 days were sandwiched between the months of August and November.

If we had a crystal ball and the time to execute, timing the markets is likely a much better strategy. However, in practice, time in the markets is a more realistic strategy.

If time in the markets allows many investors to meet their financial goals, we shouldn’t get greedy trying to avoid the worst days because, ultimately, we’ll likely also miss the best days.