Missing only a few days can have a dramatic impact on returns. For example, an investor who hypothetically remained invested in the S&P 500 Index throughout the 20-year period from 1994 to 2013 (5,037 trading days) would have earned a sizable 9.22% annualized return, growing a $10,000 investment to $58,352. More than a five-fold gain.

When the five best-performing days in that time period were missed, the annualized return shrank to 7.00%, with $10,000 growing to $38,710, and if an investor missed the 20 days with the largest gains, the returns were cut down to just 3.02%. If the 40 best-performing days were missed, an investment in the S&P 500 turned negative, with $10,000 eroding in value to just $8,149, a loss of $1,851.

Market timers believe they will miss the worst-performing days by going to cash. They of course end up missing the best days also. Steve and Sinclair review two important statistical studies on missing the 10, 20, and 30 best days and comparing to the missing the 10, 20, and 30 worst days with input from Morningstar.

 

In segment 3, Steve and Sinclair discuss strategies for missing the worst days of the market while growing income at 6% to 7%. Steve answers the question "Are annuities right for IRA rollovers?"