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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 been describing the stock market.
A new Wells Fargo analysis looked at the best 20 days for the S&P 500 between August 1992 and July 2022. Nearly half, the investment bank found, occurred during a bear market.
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In the Great Recession, on October 28, 2008, the index soared nearly 11%. On March 24, 2020, amid the fallout from the coronavirus pandemic, the S&P 500 rose 9%. (For perspective, the index’s average daily return over the past two decades is about 0.04%, according to Morningstar Direct.)
“During extreme market events, such as the credit market collapse in 2008 or the onset of the pandemic in 2020, markets don’t digest this kind of news in an instant,” said Douglas Boneparth, financial planner and certified founder. of the financial services company Bon Fide Wealth in New York.
“In general, we don’t know how everything will play out,” he added. “That’s why you see massive amounts of volatility and bad days lumped in with good days.”
The findings underscore the impossibility of timing the market, as dips and rises are so mixed.
“The odds of picking the right days to be in or out of stocks are much less 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
In fact, really good days in the market are incredibly rare.
Over the past 20 years, there have only been two days when the S&P 500 rose more than 10%, Morningstar Direct found. Meanwhile, the return was over 5% in just 16 days.
“Missing those best days can hurt long-term performance,” said Veronica Willis, investment strategy analyst at Wells Fargo Investment Institute.
Here’s an example to demonstrate Willis’ point: Imagine you had a $300,000 investment in the S&P 500 on October 13, 2008. The market rose 11.6% that day.
By the evening, you would have earned close to $35,000.
It’s impossible to know when these infrequent jumps will occur, so experts recommend trying to stay consistently invested for decades.