Sippdeal, part of platform provider AJ Bell, has looked at the returns of the FTSE 100 index over the past decade to the end of March 2013. The analysis assumes a “fully invested” position and the data showed that an initial £1,000 investment would now be worth £2,207, a return of 6.1% p.a. or 120.7% in total. Sippdeal then compared this to missing out on the best 10, 20 and 30 days over the same 10 year period. The results were very different and are summarised below.
Data provided by Shares Magazine, source Datastream April 2013.
* Includes average annual dividend yield, booked and reinvested at the end of each period. It does not account for dividend tax credit, stamp duty or any other dealing costs and commissions
Sippdeal’s analysis showed that an investor who tried to time markets and got it wrong could be left with a far less profitable outcome. Anyone who missed the 10 best days over the 10 year period would see their total return fall from 120.7% to 35.3%. Missing the 20 best days would have generated a 12.8% fall.
Billy Mackay, AJ Bell Marketing Director, comments: “Trying to time markets is virtually impossible. It is almost inevitable that by doing this, a person will miss a turning point or days when markets rise. Over the period covered by our data, it’s not uncommon for the FTSE to gain more than 2% in a single day and on at least one occasion it bounced by almost 5%; missing such days would prove extremely costly.
“In reality, it is extremely unlikely that someone trying to time markets will miss all the best days or capture all the worst. But that is the point - for most people, the results of market timing may well end up being more down to luck than judgement. These figures aim to outline the potential returns should somebody get their timing very wrong.”
A drip-feeding strategy where you add additional cash into markets over time can help smooth out any market volatility.
Says Mackay: “Buying low and selling high is the aim for any investor, but even veteran investment professionals will tell you how difficult this is because markets can be so unpredictable. For many people, regularly drip-feeding money in may be a more sensible strategy. We see many examples where Sippdeal investors use our regular investment option for this very reason.”