Some clients need a little more hand-holding than others in periods of volatility. And a new data analysis by Vanguard might help. It shows what investors really lose when they try to time the market.

To answer the question, “Why is trying to time the market a bad idea?” Vanguard recently looked at the performance of equities from June 1996 to March 2024. Stocks during that period yielded a 9.7% annualized return, or 1,218% cumulatively.

While this included several historic bull-market runs, it also included five bear markets in which stocks dropped between 20% and 55%. A few of those bear markets were linked to other major events seared in investors’ memories—the dot-com bubble, the Global Financial Crisis and the pandemic, the analysis noted.

“Everyone would love to miss out on the worst days,” says Chris Tidmore, senior manager at the Vanguard Group’s Investment Advisory Research Center, which did the analysis. “But the really important thing is when you do that, you usually also miss out on the best days, because the two usually cluster together.”

Because volatility means ups and downs in the same time period, the Vanguard team then looked at the extremes of daily highs and lows and found that bull market volatility is less violent than bear market volatility.

In a bull market, the average daily return is 0.1%, but the greatest single-day gain between 1996 and 2024 was 7.2% while the greatest single-day loss was a drop of 7.0%. But in a bear market, where the average daily return is negative 0.1%, the greatest single-day gain was 11.4% and the greatest single-day loss was negative 12.3%.

“Even when the market’s going down, you get more volatility, which includes really bad days and really good days,” says Tidmore. “Thinking of the fourth quarter of 2008 would be a great example. On average you’re ending up with more bad days than good days.”

On the other side of that, as the market turns around, there’s still volatility, but investors tend to have more good days than bad.

“This would be turning the corner as we did in the first quarter of 2009,” he says. “All you need are three good days combined with two bad days, and together [you] can end up with a good week if there’s a lot of movement.”

Investors who stay out of the market waiting for a bear market to reverse can easily miss out on those best days. So the Vanguard team illustrated what would happen to a $100,000 investment in a balanced 60/40 portfolio if the five best days were missed over that nearly 30-year time frame.

If that portfolio were fully invested and just left alone, the $100,000 would have grown to $865,000. But if an investor tried to time the market and accidently missed out on just the five best days over those 28 years, the $100,000 would have grown to only $659,000. Miss the best 10 days, and the investor would end up with just $540,000.

“What is the objective of investing? The objective is to meet your goals,” Tidmore says. “You usually have put together a portfolio that is based on long-term expectations. If you’re trying to time the market, you’re adding additional risk that you’re not going to meet the returns you require to meet those goals.”

Vanguard’s research center also looked at the probability of positive returns versus negative returns based on what just happened with the markets.

As of early May, the U.S. stock market has been on a tear this year—the S&P 500 had hit 19 new highs in the first quarter, finishing the period with a gain of 10.2%. This may lead some investors to think a correction or bear market is right around the corner, Tidmore says. But even if they’re right, the data suggests they’re wrong to flee the market.

It did not matter whether the last quarter, last two quarters or last year was positive or negative. Why? Between 60% and 80% of the time, the next quarter, two quarters or year had positive returns, according to the data.

Rebalancing portfolios is actually a far more logical way to turn volatility to clients’ advantage. “If the market goes up, you need to rebalance the portfolio. Same if the market goes down,” Tidmore says. “But this idea of getting out of the market is just not constructive.”