Scared of Where the Market Is Headed? Why Pulling Out Now Could Cost You Hundreds of Thousands

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The economy is slowing, a banking crisis seems imminent, and the government could default. Read on to learn why you should still stay invested. 

It’s a natural reaction: When something unexpectedly hurts you (like a burn or a bee sting) you instinctively respond. Your nervous system is telling you, “Yo! Look out!” and you almost can’t help but retaliate by removing whatever is causing you pain.

Something similar happens inside investors when stocks become a bear market. For those who watch their portfolios daily it can hurt so bad to see. All that hard work — money invested and time building up to this point — erased in a matter of weeks. The natural reaction, activated by greed and fear, is to sell your holdings on the way down, before it falls too far.

That might seem logical. But, according to a recent study by Fidelity, frequent selling could cost you an opportunity to gain from the market’s best days.

How selling could cost you hundreds of thousands

Fidelity investigated what would happen if we take a hypothetical initial investment of $10,000 in the S&P 500 index and remove the market’s best days between Jan. 1, 1980 and Dec. 31, 2022.

The results were pretty startling.

If you had invested for the full 43 years, then you would have $1,082,309 today. Yes, you would be a millionaire, all because you invested $10,000 in the S&P 500 and never touched your initial investment.

Now, let’s say you decided to pull your money out during the market’s best five days during that 43-year stretch. If you had missed those five days, you would have lost the opportunity to earn $411,258. That’s right: Your initial investment of $10,000 would grow to $671,051, not the million and some change you could have earned.

Let that sink in for a second: If you weren’t invested in the S&P 500 for five key days out of the 15,706 days that make up 43 years, you would have missed out on earning more than $400,000. That’s roughly $80,000 per day!

But let’s continue. Let’s say you had missed the S&P 500’s 10 best days since Jan. 1, 1980. In that situation, your initial investment would have grown to $483,336 — less than half what you could have earned if you had just stayed invested.

Likewise, missing the S&P 500’s 30 best days would leave you with $173,695, while missing 50 of its best days would have left you with $76,104.

That’s wild: The difference between staying invested for 15,706 days and staying invested for 15,656 is more than a million dollars.

Now, I know what you’re thinking — you would have to be very unlucky to pull out only on the market’s 50 best days in 43 years. Like, the kind of person who merely looks at a casino and all at once their wallet is empty.

But the point isn’t just to stay invested during the market’s best days (that’s a given). The point is to stay invested — period. The point is to let your money sit for long periods of time, such that those 50 best days, which no one knows when will happen, will grow your initial investment by 10,823%, from $10,000 to a million or more.

Afraid of where the market is headed? Don’t be

So if you’re scared of where the market is headed, remember these numbers. Because, when it comes to earning the most on your initial investment, pulling out at any time from fear or greed is the wrong move. Keep your investments in your brokerage account, and, if you can, keep contributing. The S&P 500 is still below its all-time high of $4,793. Now might be a good time to buy some shares in an S&P 500 index before the market becomes a bull.

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The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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