In a nutshell:
The average equity investor underperformed the S&P 500 by 8.48% in 2024.
Missing just 10 of the best market days over 30 years cuts returns in half.
Seven of the 10 best trading days occurred within two weeks of the worst days.
In 2024, investors pulled money from equity funds in every single quarter.
Investors who guess market direction correctly do so only 25% of the time.
When the market tanks, two things happen fast. Some investors sell everything. Others freeze and wait for a "clearer" signal to act. Both groups end up losing. The problem is not just panic selling. It is also the paralysis that follows.
Staying on the sidelines feels safe. It is not.
Why freezing feels rational but is not
Fear is not irrational. Markets can fall 10%, 20%, even 40% before recovering. That pain is real. But the brain is wired to treat loss as more threatening than equivalent gain. Behavioral finance researchers call this loss aversion. You feel the drop twice as hard as you feel the rise.
That asymmetry pushes people toward one of two bad moves: sell now and stop the bleeding, or wait until things "calm down" before re-entering. Both strategies carry a cost most investors never calculate.
The sell-and-wait trap
Selling during a drawdown locks in the loss. That part everyone knows. But what people underestimate is the re-entry problem. Getting back in requires two correct decisions: when to get out and when to get back in. Research shows investors get this right only 25% of the time. That is not a strategy. It is a coin flip with worse odds.
The freeze-and-watch trap
Staying in cash sounds conservative. But cash loses purchasing power to inflation. And every day you sit out, you are rolling the dice on whether today is one of the days that shapes your entire return over the next decade.
The real cost of missing the market's best days
This is where the data gets brutal.
According to Hartford Funds, missing just 10 of the S&P 500's best days over the past 30 years cut returns in half. Miss the best 30 days and your returns shrink by 84%. On a 30-year investing horizon, that is the difference between financial independence and falling short by a decade.
Here is the part that makes this really uncomfortable: 76% of the market's best days happened during a bear market or in the first two months of a bull market recovery. Not during calm stretches. Not when everything felt safe. Right in the middle of the chaos people are trying to escape.
When the best days actually happen
Seven of the 10 best S&P 500 trading days over the past 20 years occurred within two weeks of the 10 worst days. Think about that timeline:
A brutal sell-off hits. You panic or freeze.
Within days, the market bounces hard.
You are not in it.
The investor who stepped away during the crash to "wait and see" missed the very recovery they were waiting for. The best days do not announce themselves. They show up fast, right after the worst ones.
The best days by market context
Look at where recent monster up-days came from:
Six of the best trading days over the past two decades happened during the 2008 to 2009 financial crisis.
Three of the best days came during the first months of the COVID-19 market collapse in 2020.
Only one of the best days over the past 30 years came during a stable, calm bull market period.
If you were sitting out during those crises, you missed the biggest single-day gains in a generation.
What the average investor actually earned in 2024
The S&P 500 returned 25.02% in 2024. That was a strong year by any measure. The average equity fund investor? They earned 16.54%. That is an 8.48 percentage point gap, the second-largest investor underperformance gap in a decade.
Think about what that gap means in real terms. If the average investor had simply matched the index, their 2024 gains would have been more than 50% higher. They did not get there because the market performed badly. They got there because of their own behavior.
DALBAR has tracked this since 1994. The finding holds across every market environment: the average investor consistently earns less than the market they are invested in.
Where the 2024 gap came from
The behavior pattern in 2024 followed a familiar playbook:
Investors pulled money from equity funds in every single quarter of 2024.
The largest outflows happened just before the market made its biggest move higher.
Panic selling happened at exactly the wrong moments.
The investors who sold got out at the wrong time, waited on the sidelines, and missed the gains they had been positioning for.
Why this extends into a 15-year losing streak
2009 was the last year the average equity investor beat the S&P 500. That is 15 consecutive years of underperformance. Not because the market failed them. Because behavior did.
The market timing impulse does not just hurt in individual years. It compounds negatively over time, the same way patient investing compounds positively. Every bad exit and delayed re-entry is another layer of drag stacked on top of the last one.
What the data says about post-drop recoveries
Corrections hurt. But the historical record is consistent: the market recovers. And the recoveries do not wait for investors to feel confident again.
The average holding period for equity funds dropped to 4.79 years in 2024. That is barely half the length of a typical market cycle. Investors are cycling in and out faster, catching less of the upside on each turn, and paying more in behavioral costs every time they do.
A long time horizon is the most powerful tool in investing. Not because it removes risk, but because it gives compound growth the time it needs to work. Selling during a drop and waiting to re-enter resets that clock every time.
How to hold during a drop without holding blindly
Staying invested is not the same as ignoring your portfolio. The goal is not to white-knuckle through every decline with no plan. The goal is to have a system that removes the emotional decision-making from the equation.
A few approaches that work:
Dollar-cost averaging: Invest a fixed amount on a schedule, regardless of price. Down markets mean you buy more shares. You stop guessing when to enter.
Diversification: A spread across sectors and asset classes reduces the psychological weight of any single position. If one holding drops 30%, your whole portfolio does not feel like a disaster.
Pre-commitment rules: Decide in advance what would actually warrant a change to your allocation. A 10% market drop is not it. A change in your financial situation or risk tolerance might be.
The Stoxcraft Screener covers 3,487 stocks across 156 industries. That kind of breadth makes it easier to build a portfolio with enough spread to handle downturns without forcing you to make reactive decisions.
If you want more on the biases that push investors toward bad timing decisions, the top 5 biases that mess up your investor mindset is a good place to dig in. And if you are genuinely asking whether now is a reasonable time to be invested, should you invest now walks through the factors that actually matter.
For context on the current market environment, why this selloff feels different breaks down what is driving the current pressure and what history says happens next.
The only number that matters on a down day
When the market drops 5% in a day, that number dominates every financial headline. It feels enormous. It is not the number that will define your returns.
The number that defines your returns is how many years you stayed invested. And how many of the best days you were present for.
Doing nothing when the market drops is only a strategy if your plan accounts for the cost of what you will miss on the other side. For most investors, it does not. The gap between what the market earns and what the average investor earns is not a market problem. It is a behavior problem.
Stoxcraft has outperformed the S&P 500 by 150% over five years by screening for quality, not chasing headlines. The data holds up on the other side too: staying invested in the right stocks, through the rough patches, is where long-term returns are built.
Disclaimer: This article is for informational and educational purposes only. It does not constitute financial advice, investment advice, or a recommendation to buy or sell any security. All investing involves risk, including the possible loss of principal. Past performance is not indicative of future results. Please consult a qualified financial professional before making any investment decisions.
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