The Cost of Market Timing

April 22, 2025

By: Michelle Tiraborelli                                                                                                                    View PDF
Equity markets have experienced significant volatility over the past few weeks, driven by President Trump’s recent tariff actions and continuing uncertainty around the administration’s objectives. President Trump announced a wave of new tariffs on April 2nd which exceeded the market’s expectations, sending the S&P 500 down over 10% in the two days immediately following1. Then on April 9th, following the announcement that the extra “reciprocal” tariffs on most countries would be paused for 90 days, the S&P 500 gained 9.5%, making it the tenth best day for the U.S. equity market in the last century2. For investors, this market environment underscores the importance of staying invested. While it may be tempting to cash out when markets sell-off to avoid risk, historical data suggest that staying invested through market fluctuations tends to yield better returns than attempting to time the market.

Missing the best days in the market significantly reduces returns

Attempting to time the market can be costly. Investors who try to predict market movements, or wait for market conditions to improve, often miss out on the best days of market performance. Over the last 20 years, six of the ten best days for the S&P 500 occurred within just two weeks of the ten worst days3. Missing the top-performing days in the market can significantly reduce overall returns, as shown in the chart below. An investor with $10,000 invested in the S&P 500 who remained fully invested over the last twenty years would have outperformed an investor who missed out on just the 5 best days by 62% and one who missed out on the 10 best days by more than 100%3. If the $10,000 remained fully invested over the 20-year period, this amount would have grown to $66,2123. In comparison, missing out on just the 5 best days during that investment horizon reduces the return by 38%, resulting in an ending investment value of $40,895 and missing the 10 best days reduces the return by more than half, resulting in an ending investment value of $29,4563.

Performance of a $10,000 investment in the S&P 500 Index over 20 years

Total returns: Jan. 3, 2005 – Apr. 11, 2025

Source: LSEG Datastream, as of April 11, 2025. Total return for the period from January 3, 2005 to April 11, 2025.

While equity markets have experienced notable volatility in 2025, we believe the long-term benefits of staying invested outweigh the potential gains from market timing. By staying focused on longer-term equity market performance, understanding the costs of market timing, and maintaining a diversified portfolio, investors can better navigate market fluctuations to stay on track with their investment goals.
 

1 Source: LSEG Eikon, as of April 4, 2025.
2 Source: Morgan Stanley, April 11, 2025.
3 Source: LSEG Datastream, as of April 11, 2025. S&P 500 total return for the period from January 3, 2005 to April 11, 2025.

This report is for information purposes only and does not constitute an offer to sell or a solicitation to buy the securities referred to herein. The opinions contained in this report are solely those of Brompton Funds Limited (“BFL”) and are subject to change without notice. BFL makes every effort to ensure that the information has been derived from sources believed to be reliable and accurate. However, BFL assumes no responsibility for any losses or damages, whether direct or indirect which arise from the use of this information. BFL is under no obligation to update the information contained herein. The information should not be regarded as a substitute for the exercise of your own judgment. Please read the prospectus before investing.

Commissions, trailing commissions, management fees and expenses all may be associated with exchange-traded fund investments. Please read the prospectus before investing. Exchange-traded funds are not guaranteed, their values change frequently and past performance may not be repeated.

You will usually pay brokerage fees to your dealer if you purchase or sell shares of an investment fund on the Toronto Stock Exchange or other alternative Canadian trading system (an “exchange”). If the shares are purchased or sold on an exchange, investors may pay more than the current net asset value when buying shares of the investment fund and may receive less than the current net asset value when selling them.

There are ongoing fees and expenses with owning shares of an investment fund. An investment fund must prepare disclosure documents that contain key information about the fund. You can find more detailed information about the funds in the public filings available at www.sedarplus.ca. Investment funds are not guaranteed, their values change frequently and past performance may not be repeated.

Information contained in this document was published at a specific point in time. Upon publication, it is believed to be accurate and reliable, however, we cannot guarantee that it is complete or current at all times. Certain statements contained in this document constitute forward-looking information within the meaning of Canadian securities laws. Forward-looking information may relate to matters disclosed in this document and to other matters identified in public filings relating to the fund, to the future outlook of the fund and anticipated events or results and may include statements regarding the future financial performance of the fund. In some cases, forward-looking information can be identified by terms such as “may”, “will”, “should”, “expect”, “plan”, “anticipate”, “believe”, “intend”, “estimate”, “predict”, “potential”, “continue” or other similar expressions concerning matters that are not historical facts. Actual results may vary from such forward-looking information. Investors should not place undue reliance on forward-looking statements. These forward looking statements are made as of the date hereof and we assume no obligation to update or revise them to reflect new events or circumstances.

Michelle Tiraborelli

Head of CEFs

Michelle Tiraborelli has 19 years experience in the financial industry and is Senior Vice President and Head of Closed-End Funds at Brompton Group. Prior to joining Brompton in 2010, Ms. Tiraborelli was an Investment Advisor with BMO Nesbitt Burns. She holds a Bachelor of Science (Honours) degree from Queen’s University and an MBA from the Hong Kong University of Science & Technology.

Recent Insights

Get from AAA to BBB with High Income Investment-Grade CLOs
The Case for High Free Cash Flow Yield Investments in Today’s Market
Don’t Fear the Peak: Investing at All-Time Highs