WHICH IS MORE IMPORTANT–making sure you participate in the market’s 10-best performing days or avoiding the market’s 10-worst performing days over any given period? Based on the 81 years between January 3, 1928 and March 31, 2009, here are some numbers to help us answer this question, according to data from Invesco Aim:

• The 10-best performing days in the S&P 500 index yielded a daily average return of 11.7%. The 10-worst performing days yielded a daily average return of -10.8%.
• If you missed the 10-best performing days, $1 would have grown to just $14.99.
• If you missed the 10-worst performing days, $1 would have multiplied to $143.47.
• If you missed the 10-best and the 10-worst days, $1 would have grown to $47.59.
• On a buy and hold basis, one dollar invested at the beginning of this 81-year period would have grown to $45.18 by March 31, 2009.
• All 10 of the worst performing days occurred during bear markets as did seven of the 10 best-performing days.

Here are a few thoughts on interpreting this data: 

• First, missing the 10-best performing days reduced your growth over the entire 81-year period by about two-thirds compared to staying fully invested during that period. This makes a case for staying fully invested so you don’t miss these big up days.
• Second, missing the 10-worst performing days more than tripled your results compared to staying fully invested. This suggests that historically, if you had magical powers to foresee the future and were out of the market on the 10-worst performing days, your return would have more than tripled the return of the fully invested buy-and-hold strategy. This makes a case for market timing.
• Third, missing both the 10-best and 10-worst days in the market had very little impact on your results compared to just staying fully invested during the entire period. Score another one for buy-and-hold.

But, let’s be realistic. The above numbers are based on historical data, you cannot invest directly in an index, and few people have an 81-year investment horizon. And, by the way, nobody we know has the ability to perfectly time the market and pinpoint the 10-best and 10-worst performing days before they happen.

This data helps support two of our beliefs. First, the historical data shows the importance of risk management relative to return maximization. Second, we design your investment plan to meet your financial goals, not simply to capture or avoid the best and worst days in the market. Ultimately, it’s your number that we are trying to achieve.