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The Good, the Bad, and Ugly Market Return Days

Industry Trends and Research

One of the most common charts used to demonstrate the benefits of being a long-term investor is the implications of missing the best trading days. The message that is often used by supporters of indexing and passive investing strategies is that the majority of investors who attempt to “time the market” are likely to miss out on the best performing days, which can negatively impact the growth off an investment portfolio over extended periods of time.

While having a long-term investment focus and understanding the implications of missing good market days, it’s also important to focus on the inverse: the potential benefits associated with missing the worst performing market days.

Looking at historical daily price returns for the S&P 500 from Jan. 3, 1927 to Dec. 31, 2022 (which includes 23,864 daily returns), based on data from Yahoo Finance!, it is clear that while missing the best performing days can significantly reduce investor returns, missing the worst performing days can actually have a larger effect.

First, here is the average annual geometric return based on missing certain days either over the full period, or some combination of the worst days, the best days, or no days during the most recent 10-year period (2012-2022).

Average Annual Geometric Returns

Source: Yahoo Finance, Authors’ Calculations

The returns experienced by investors over these two time periods increase significantly as an investor misses more of the worst days and conversely, returns decrease as an investor misses more of the best days, which is not surprising.

However, what if an investor were to miss both the best days and the worst days over both time periods in question? For example, let’s assume an investor were to miss both the five best days and the five worst trading days — would he or she be better off?

Missing the Best and the Worst Days

Source: Yahoo Finance, Authors’ Calculations

We find that average geometric returns increase as more days are missed, when balancing out the best and worst days. In other words, while missing the good days is obviously harmful to portfolio growth, missing the bad days can actually have a more positive impact on the portfolio even when compared to remaining passive and missing no days at all. This is largely due to the disproportional impact negative returns have on realized returns. Missing out on the worst negative returns impacts the outcome that missing out on the best positive returns. For example, while extreme, an investor must experience a +100% return in the year immediately following a year where the investor experienced a -50% return. This point is often missing from conversations about missing out on market performance days.


The conclusion is not that investors should actively try and time the market, but rather the notion of being “out of the market” and missing the best days isn’t necessarily as detrimental as it is perceived to be when the potential benefits of missing the worst days and the associated negative returns (especially the “ugly” ones) are also considered. 


David Blanchett is Head of Retirement Research for PGIM DC Solutions. PGIM is the global investment management business of Prudential Financial, Inc. David is also currently an Adjunct Professor of Wealth Management at The American College of Financial Services and Research Fellow for the Alliance for Lifetime Income.

Ross Riskin serves as Chief Learning Officer for the Investments & Wealth Institute and his research and professional expertise focus on advice engagement, education planning, and tax and wealth transfer planning for high-income and high-net-worth individuals. He is also the Managing Member of Riskin Wealth Management, LLC, Founder and Chief Creative Officer at visiWealth, and sits on the Advisory Board for the American Institute of Certified College Financial Consultants.


This material is for informational, illustrative and educational purposes only, and is not intended as investment advice and is not a recommendation about managing or investing retirement savings.

©2023, PGIM. Used with Permission.