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- Investors risk losing out big if they try to time the market instead of holding through today’s volatility, Bank of America strategists led by Savita Subramanian said Thursday.
- Missing out on the market’s 10 best trading days per decade since the 1930s means the difference between a portfolio gaining 17% over the period or surging 16,166%, according to the team.
- Staying invested through turbulent price action “can help recover losses following bear markets” faster than rapid-fire day trading, they added.
- The bank recommended staying put in high-quality stocks, particularly firms with healthy balance sheets.
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It’s an age-old investing adage: “Don’t time the market.” Yet turbulent price action and slashed trading fees fueled increased day-trading activity throughout the pandemic as investors looked to capitalize on Federal Reserve relief and the US economic recovery.
Those trying to trade stocks at a rapid-fire pace are likely to miss out on the market’s best gains, the team led by Savita Subramanian said in a note to clients. If an investor missed out on the 10 best trading days per decade since the 1930s, their returns would total just 17%. Had they stayed in the market, their portfolios would’ve swelled by 16,166%, the team said.
“Market timing is difficult: the S&P 500’s best days generally follow its worse days,” the strategists wrote. “Remaining invested during turbulent times can help recover losses following bear markets.”
It takes an investor roughly 1,100 trading days to recoup losses after a bear market, they added. Missing this year’s rally out of bearish territory would be more detrimental than usual, as the record-speed slump in late February and early March was met with a similarly rapid surge back to historic highs.
For those who entered too late to enjoy the stock market’s return to pre-pandemic highs, there’s still opportunity in high-quality names, Bank of America said. The strategists recommended stocks with healthy balance sheets, as those firms are best positioned to ride out any spike in volatility or negative economic surprise.
They also trade near record underweight levels to the average active stock fund, the team said, making them one of the few corners of the market still ripe for new inflows. While “financial theory tells us quality should trade at a premium,” the stocks continue to trade at a discount to their lesser-quality peers, the strategists added.
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