Check out this chart before you pull your IRA out of the market
Fidelity estimates how even missing out on just a handful of days in the stock market can cost you big in the long run
DALLAS — I used to run track. I have a lot of red, yellow, green and white ribbons to prove it. Seriously, not one blue ribbon. Still, even I know that a sprinter should be moving faster than a long distance runner. But earlier this year that didn’t happen in the stock market.
By one recent count, there were 5,866 U.S. companies that sell stock. It would be a lot to keep up with all of them, so an index, like the Dow Jones Industrial Average, the NASDAQ, or the S&P 500 keeps tabs on a smaller basket of stocks. Depending on whether those baskets of stocks are up or down, we get an idea of how the broader stock market is doing.
The death cross
So back to our running analogy. The sprinter in a market index would be how much its basket of stocks is worth if you look at just the most recent 50 days. The long distance runner would reflect how much the basket of stocks is worth over the last 200 days. In February and March of 2022, in each of the major stock market indices the sprinter (the 50 day moving average) fell below the pace of the long distance runner (the 200 day moving average). That’s called a death cross.
Some investors run away from the market when that happens, because historically, it has indicated that more losses are to come. But others, as explained in this article a few months ago, say that death crosses in recent times have signaled the damage is about done, and it might be a good time to buy more just before a rebound.
An analysis reported by Barron’s found that two out of three times when the S&P 500 experienced a death cross, 12 months later the index posted gains. Almost the same story for the Dow: 12 months later–gains two-thirds of the time. But the same analysis also found that 59% of the time, the market was up three months after a death cross.
But that didn’t happen this time.
Three months after the 2022 death crosses, markets had fallen further. It raises the questions: Will this be one of those unusual times when stocks slide further? Or will the historical stats prevail, sending stocks much higher in the months ahead or by early next year?
No one really knows. But it is a good time to assess your investments, and maybe talk with an advisor.
This chart may make you think twice about exiting the stock market
If you have a 401(k) or IRA, you may have already hit the exits and pulled your money out of stocks and gone home, never to think about it again…only to keep thinking about it every day.
You might be right to obsess over a move like that. Fidelity has a flashing red warning light for anyone looking to cash out. The firm created a chart that assumes you invested $10,000 in stocks in January 1,1980. When they published the chart last year, they assumed that you stayed invested for ALL of the days stretching from the beginning of 1980 through March 31, 2021.
If you stayed in the whole time, Fidelity estimates your initial $10,000 investment became a little more than a million dollars. But if you pulled your money out along the way and missed out on just the best five days the market had in all those years, you would end up with about $676,000.
If you missed the best 10 days of the market, they predict your money would grow to about $487,000. That’s less than half of the big nest egg you would’ve amassed if you had just stayed in for all the days.
And the final account balance goes down from there just depending on how many more of the market’s ‘best days’ you miss. It can be hard to stay in the market when there is volatility and you see account balances falling.
The point Fidelity is making, though, is that it is even harder to come out on top if you take too much control over investments, withdraw at the wrong times and miss out on big gains.
If you haven’t done it already, you should at least be reviewing your investment choices, maybe tweaking them, and talking with an advisor.