Staying the course does not mean "set it and forget it"

It’s the rare investor who doesn’t want to flee to safety during extreme market upheaval, and it’s difficult to argue with their reasoning: (a) retaining as much of their remaining assets as possible, and (b) retaining the ability to jump back into the markets when they stabilize. 

Unfortunately, however, fleeing the market and then returning at some ‘safer’ future date are the hallmarks of market timing. While selling assets and moving to safety may make an investor feel better, these actions may also cause investors to miss some of the best days the market has to offer, because the best and worst days often occur together. 

As noted by a recent Vanguard¹ article, “Stock market volatility can feel unnerving, but history has shown that some of the best days in the market often follow bad ones, as seen in Figure 1. The practical effect is that the market moves too quickly and unpredictably for someone to trade large portfolio positions in and out effectively. One could easily mis-time big market moves, and the transaction costs of attempting to keep pace with them would be significant.”

“Further, the effects of missing strong recovery days compound over time. Figure 2 provides a compelling example of what this can look like for a client portfolio. Given a hypothetical $100,000 portfolio tracking the S&P 500 Index (starting in 1988), we can see the portfolio’s 2024 value if that money remained invested the entire time ($4.9 million), if it were out of the market for 10 of the best-performing days ($2.3 million), if it had missed 20 of the best days ($1.4 million), and if it were out of the market for 30 of the best days ($0.9 million).” 

As can be seen, the data is too compelling to ignore. The difference between staying in the market and missing the 30 best days is a staggering 82%, a portfolio difference that can ruin almost any retirement plan. 

But, as the authors note, “Staying the course is often mistaken for buy and hold or set it and forget it, both of which are passive strategies, but it often means the opposite.” But when a portfolio deviates from its plan, changes should be made. To keep a portfolio on its desired course, changes will occasionally need to be made. In that instance, rebalancing would be a step in the right direction. 

Even rebalancing, however, can be an “emotional challenge.” It’s often difficult for many investors to rebalance from winning asset classes to lesser-performing classes. While investors may not be able to sell when market momentum is going in their direction, that’s exactly when rebalancing should occur. Difficult; yes. Necessary; yes. Being in the market doesn’t mean changes aren’t occasionally required. 

Similarly, as we get older, and if portfolios grow, risk tolerances may change. There may be opportunities to reduce risk, thus moving assets from the higher volatility side of a portfolio (i.e., stocks) and moving them to the less volatile side (i.e., bonds). Staying the course doesn’t mean setting investment allocations in stone. 

Despite all the reasons why an investor may feel compelled to sell and run to safety during tumultuous times, it’s of utmost importance not to “interrupt the power of compounding” and stay invested. Investing for the long term takes courage, commitment, and, quite often, a strong constitution. Keeping an eye on the long-term goal – a successful retirement – will ultimately make it all worthwhile. 

¹ Kinniry Jr., Francis, et al., “Staying the Course Does Not Mean Set It and Forget It,” Vanguard, 17 Apr. 2025.

S.F. Ehrlich Associates, Inc. (“SFE”) is a registered investment advisory firm in New Jersey that offers investment advisory, financial planning, and consulting services to its clients, who generally include individuals, high net worth individuals, and their affiliated trusts and estates. Additional disclosures, including a description of our services, fees, and other helpful information, can be found in our Form ADV Part 2, which is available upon request or on the SEC's website at www.adviserinfo.sec.gov/firm/summary/121356.

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