Three reasons why you should remain invested

by Larry Adam, CIO, Raymond James

Key Takeaways

• Time In The Market Is Key To Your Success
• Missing The Best Days Will Erode Your Returns
• Don’t Let Election Year Jitters Keep You Sidelined

Record Heat Wave! A ferocious heat dome is expected to bring record breaking temperatures to much of the Midwest and Northeast this week. The first summer heat wave will surely be a scorcher—with weather forecasters anticipating that over 265 million people across the US will experience 90 degree or higher temperatures! And the weather is not the only thing breaking records these days, the stock market has been on a tear too—racking up 31 record highs this year, its best start to the year since 2019 and the best start to a reelection year ever! After the S&P 500’s incredible run—up 57% from its October 2022 lows and with an election on the horizon, its normal for investors to wonder whether to take some chips off the table or hold off on investing to see what happens. Here are three reasons why you should remain invested:

1. Time In The Market Is Key For Your Success | Investing at all-time highs can seem scary, as psychologically, everyone wants to get into the market at lower prices. But there will be periods where the S&P 500 ratchets higher and investors question whether they should put more money to work at current levels. However, it is important to remember that the stock market moves higher over time—and that means that new records are bound to happen. While they may not happen every year, navigating all-time highs is part of the investing journey. They do not signal a correction is imminent, they are simply a reflection that the economy is healthy and growing and corporate profits are moving higher—the main reasons why the S&P 500 is setting new records this year! Looking back through history, the S&P 500 has set 1295 all-time highs since 1950. To put that into perspective, that’s an average of 17.5 new highs each year or a new record every 14.5 trading days. Pretty impressive when you step back and think about it! Sitting on the sidelines and waiting for a correction could lead you to miss out on the gains that occur along the way as the S&P 500 continues its upward trend over time. Sure, there will be reasons to worry as the market climbs to new highs—whether it’s Fed uncertainty, valuation concerns, geopolitical risks or elections—just don’t let the noise derail your investing approach. History demonstrates that even if a correction unfolds, time will be on your side if you remain focused on the long term. The longer you remain invested, the less likely you are to endure a portfolio loss.
2. Missing Best Days In The Market Will Erode Your Returns | Trying to time the market is notoriously difficult. Yet too many investors still try to outsmart the market; they do so at their own peril. Countless studies show that missing the 10 or 20 best days in the market can dramatically reduce the average annual return over time. And our research confirms it. In fact, missing the best 20 days of the S&P 500 over the last fifty years would cause your annualized return to dwindle from 8.3% (invested the entire time) to 5.4%. And missing the best 50 days would essentially wipe out the performance (2.7% annualized). The challenge facing investors when trying to time the market is that the best and worst days tend to be clustered together—sometimes on consecutive trading days. So, if an investor panic sells at an inopportune time when the market sinks, thinking it is safer to temporarily go to cash and ride out the storm, they not only lock in their losses, but increase the chance they will miss the ensuing rebound (i.e., best days). While it is a natural impulse to want to preserve your investments, history shows that staying the course and remaining invested yields better results. In fact, studies show that market timing accounts for less than 7% or your return, whereas your asset allocation decisions make up 91% of your return!*
3. Don’t Let Election Year Jitters Keep You Sidelined | One of the biggest investor questions these days is how will the upcoming election impact the economy and financial markets? While politics do play a role and election uncertainty is sure to push volatility higher leading into the election, the results (regardless of who wins) will not be the primary driver of market returns. Rather, the fundamentals—the economy, earnings growth, valuations, Fed policy, and inflation—are far bigger drivers of the equity market’s performance than which party is in the White House. In fact, history shows that the S&P 500 moves higher regardless of who wins the presidential election—with the market up 11% post-election through the end of the following year as uncertainty fades! More important, the dispersion of returns under a Democratic president versus a Republican president are quite narrow. Under Democrats, the S&P 500 generated an annualized performance of 10.1% versus 8.1% under Republicans. Similarly, the results are neck-in-neck when comparing the number of negative performance years for the S&P 500 (12 under Republicans/11 under Democrats) and negative economic growth years (7 under both). The point is: don’t let your political biases rule your decision making and keep you out of the equity market.
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   All expressions of opinion reflect the judgment of the author(s) and the Investment Strategy Committee, and are subject to change. This information should not be construed as a recommendation. The foregoing content is subject to change at any time without notice. Content provided herein is for informational purposes only. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Past performance is not a guarantee of future results. Indices and peer groups are not available for direct investment. Any investor who attempts to mimic the performance of an index or peer group would incur fees and expenses that would reduce returns. No investment strategy can guarantee success. Economic and market conditions are subject to change. Investing involves risks including the possible loss of capital.

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