It’s all a bubble! Crash incoming soon! Doom… Doom… Doom…

Does this sound familiar?

All-time highs can be scary. They’re particularly scary for someone like me who is, at heart, a contrarian when it comes to investing.

And there are rational reasons to feel afraid that markets are overvalued, particularly now.

Just look at one example below. This chart shows the CAPE ratio for the S&P 500 index since 1872. The CAPE ratio measures current valuations relative to recent earnings. To explain without going into full detail – lower values imply the index is “cheap” and higher values imply it is “expensive”.

You’ll note that the current S&P 500 CAPE ratio is the highest it has been since the dot-com bubble.

Pretty ominous stuff <gulp>.

Personally, I like to buy things when they’re cheap (ask my wife), not when they’re close to their highest price ever.

However, the flip side of this is that all-time highs can be paralysing for many. They can invoke fear and worse, inaction.

So, whilst I agree that markets do feel “toppy” right now, I thought it would be worth reviewing some reasons why you might not need to fear them as much as one may at first think.

For this, let’s go to the data.

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1. All-time highs are actually pretty common

Whilst an all-time high might sound like something a little special, they are in fact pretty common.

For example, last year in 2025 we had 39 of them.

Since 1950, 7% of all trading days have closed at an all-time high. That’s approximately 1 every 14 days.

And remember, the market achieving highs is actually a good thing.

The fact we’ve yet to encounter a period where the S&P 500 hasn’t eventually gone on to make a new high should be reassuring for those who invest in it. (NB: This is just one market; there are other examples where this has not been the case, e.g. the Nikkei. But that is for a separate post.).

However, just because all-time highs are common does not mean they occur regularly.

If you look at the chart below, you can see there are periods of several years where the market can go without reaching an all-time high.

For example, following the Dot-Com Bubble in 2000, it took 7 years for the index to regain its losses. Similarly, following the Global Financial Crisis, it took 6 years.

2. Many all-time highs are not really all-time highs

It’s worth remembering that the S&P 500 index is quoted in nominal terms – meaning it’s not inflation-adjusted.

So, whilst the index may be going up in nominal terms, it may not always be rising in real terms once you adjust for inflation.

To account for this, I decided to adjust each of the S&P 500 all-time highs for inflation, using the CPI (inflation) index for the US.

What this showed me was that just over half (56%) of the all-time highs were actually all-time highs in “real” terms.

Nearly half of “record highs” aren’t really records at all.

The remaining 44% were effectively “fake” all-time highs. Nominal peaks that were flattered by inflation.

This is why tools like the CAPE ratio (referenced above) are helpful for valuation, as they allow cross-year comparison, which inherently allows for the effects of inflation to be netted off.

And in case you were wondering, pretty much all the all-time highs this year have been so in both nominal and real terms.

3. Normally, the market doesn’t stay down for very long following a record high

In 87% of cases, the S&P 500 has gone on to make a new all-time high within 10 trading days of achieving one.

The average (mean) number of days between all-time highs is about 14.

The histogram below shows this distribution a little more clearly.

Of the 1,272 times the S&P 500 hit a new all-time high since 1950, 714 were followed by another ATH within a single trading day.

Yes, there are some cases where significant periods of underperformance have persisted following an all-time high. But these are relatively rare. This doesn’t mean we should be dismissive of that risk, but rather be conscious of how likely it is to occur.

4. Okay, but what about returns?

This is where the rubber really hits the road – does investing at all-time highs produce worse returns?

In short, yes.

But perhaps not as bad as you may think.

To analyse this, I looked at what the typical return would be if you’d only invested on days that were all-time highs. I then compared this to returns if you’d invested on all the other trading days (since 1950).

What this showed was, I thought, pretty interesting.

In the chart below, I’ve calculated the average investment returns (for the S&P 500) both 1 year and 5 years after investing at an all-time high.

In both cases, your performance would be worse:

• 8.6% vs. 9.5% after 1 year

• 57.5% vs. 66.4% after 5 years

However, surprisingly to me, performance was not that much worse. That’s a gap of just 0.9 percentage points after one year, and 8.9 percentage points after five.

Buying at the worst possible moment in market history – the exact top, every single time – cost you less than one percentage point over a year.

That difference is still meaningful, particularly over long periods of time. But it also assumes you had the worst luck in the world in terms of timing!

What this all means for us

So, what can we take away from the above?

First, please don't take this as a recommendation to invest in the S&P 500 right now. That is not the purpose of this post. And, in fact, there are good reasons to believe current valuations are pretty over-extended.

However, here are some generic takeaways.

1. You may still get in right at this top. Sorry, but that’s life. Yes, it still might be “sod’s law”, and you may choose to invest at or near the multi-year top. Investing is all about probability, and I can’t sit here and tell you that definitely won’t happen. But…

2. An all-time high is not, by itself, a reason to stay out of the market. The point I’m trying to get across is that simply the fact that the market is at an all-time high does not, in itself, mean it is a bad time to invest. Indeed, historical probability appears to be on your side here. And that is why the finance community chants of “stay invested” carry some weight.

3. Do still manage your risk. Aside from the market reaching new highs, there may be other good reasons not to invest. The instance of an all-time high should be just one piece of the puzzle as you form your investment thesis. Look at other signals and measures of valuation, not just price. The CAPE ratio is a good example of this (but again, just one indicator).

4. If the worst happens, don’t panic. As I said, history is on your side here. Yes, you may be unlucky and pick the worst investment point, but so long as you’re prepared to wait it out, you will, in all likelihood, be okay.

If you enjoyed reading this, please consider restacking or sharing it. You may also wish to review this other post: Timing the market might not be as hard as you think

Pounds & Pennies is my little place to geek out about economics, personal finance and markets. If you’ve enjoyed this piece and would like to read more, please consider hitting the subscribe button below.

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If you think someone else would enjoy it too, sharing is the single biggest thing you can do to help Pounds & Pennies grow. Thank you – Ben.

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As always, nothing in this article should be considered financial advice. I write for fun and am not a financial advisor. The analysis here is intended to be informative and thought-provoking, not a recommendation to buy, sell, or do anything with your money.

(Or perhaps the “cost of living”, as it’s more commonly known.)

And there is good reason for this.

Over the last few years, we have seen several inflationary impulses which have impacted everyday prices. For example:

• Supply backlogs and money printing associated with COVID-19

• Shortages driven by the Ukraine / Russia war

• Increasing tariffs creating price inflation for consumers

• Recent spikes in energy prices driven by the conflict in the Hormuz Strait.

Most people will, I think, naturally understand why inflation is bad for us.

It costs us more to buy things, and unless wages keep up, we are all, therefore, poorer in “real” terms.

However, in this article, I wanted to explore specifically the reasons why inflation is particularly bad for lower-income households.

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1) Poorer households tend to spend a greater share of their income

The first key reason is that poorer households tend to spend a greater proportion of their overall income. This is as opposed to saving or investing it.

Let’s take a simplified example:

• Sam needs £2,000 per month to live on.

• He earns £2,500 per month after tax.

• He, therefore, spends 80% of his income and saves the remaining 20% (£500).

• Now assume inflation increases the average cost of living by 5%. This means Sam now needs £2,100 per month to live on.

• That equates to spending 84% of his income per month. An extra 4%. And he only gets to save 16% / £400 as a result.

Now assume his friend Helen has the same cost of living, £2,000.

• However, she earns a much higher income of £10,000 per month, after tax.

• Previously, before inflation, Helen’s costs were 20% of her income.

• After 5% inflation, her costs rise to £2,100.

• This is 21% of her income or 1% extra in addition.

Inflation “costs” the poorer person a 4% share of their income versus only 1% for the wealthier friend.

Presented in this way, inflation effectively operates as a tax. Because it occurs indirectly, it is often referred to as a “stealth tax”.

But worse, as demonstrated above, it is a regressive tax. A regressive tax is one that hits lower-income families harder on a proportionate basis.

Inflation is a tax nobody voted for, and the less well off in society sadly end up paying the highest rate.

2) Wealthier households invest a greater proportion of their income

The other key factor is that wealthier households usually invest more of their income.

Investments in assets tend to be more inflation-proof as they generally rise or even outpace the rate of inflation.

Note, this is a generalisation as there are many asset classes that underperform as inflation picks up. However, for simplicity, let’s assume that invested money generally performs better than cash during inflationary cycles.

Let’s revisit our previous example.

• After the effects of inflation, Sam has £400 he can choose to save and invest.

• If he had limited savings, he would probably want to save it all and hold it in cash, for which he would only earn a limited return.

• However, let’s assume he has an emergency fund already built up and can invest the £400.

• Helen, on the other hand, can invest £7,900.

• Even if they both receive the same rate of return (let’s say 10%), after 1 year, Sam’s wealth on that month’s income will have grown by £40 and Helen’s to £790.

• Seems pretty fair given the amount they both invested.

• However, relative to what they earn each month, Sam’s wealth has increased by 1.6% (£40 ÷ £2,500) and Helen’s by 7.9% (£790 ÷ £10,000).

Same rate of return. Wildly different outcome.

You can see, even accounting for the fact Helen earns a lot more than Sam, she is able to grow her wealth at a much faster rate than Sam is.

If Sam didn’t have an emergency fund already, this situation would be even worse. He would likely hold most of his savings in cash and therefore suffer an even lower rate of return.

If the above example was too long-winded, the TLDR is:

• Wealthier households can invest a greater share of their income.

• Investments tend to offer better protection from inflation.

• Therefore, wealthier households are more shielded from the effects of inflation than poorer households.

3) Wealthier people have more options available to adjust their consumption

The final point I wanted to make is around consumption patterns.

In the example above, I assumed both Sam and Helen had the same monthly expenses. In reality, Helen would probably spend a greater proportion of her income on obtaining a higher quality of life and enjoying more luxuries.

Sam, however, would probably spend the majority of his income on essentials, i.e. rent, food, utilities, etc.

That in itself gives Helen more options when hit by inflation, as she has a greater ability to reduce her consumption on a proportionate basis.

Some key ways she can do this are:

• She can choose to forego luxuries. For example, she may decide not to go on holiday if the costs are now too high.

• She can choose to substitute luxuries. Helen may still want to go on holiday but will have greater opportunity to downgrade to a cheaper holiday, e.g. a closer destination or more modest accommodation. Essentials are harder to substitute, which is why Sam has fewer options here.

• She can choose to delay consumption. Whilst both parties will need to continue to spend on essentials, Helen could choose to delay her holiday for the future when prices may reduce again.

The bottom line

Hopefully, this has given you a little insight into some of the reasons inflation is worse for poorer households than wealthier ones.

This is by no means an attack on wealth – far from it. But I think it’s important to understand the range of societal impacts that rising cost of living can have.

To summarise the key points:

• Poorer households “consume” a greater share of their income, which is therefore proportionately hit more by inflation.

• Wealthier households invest a higher share of their income, which provides shielding from the effects of inflation.

• Wealthier households have more flexibility to modify their consumption habits as they spend a smaller percentage of their income on “essentials”.

• As a result, high inflation exacerbates the gap between the wealthier and the poor.

If you want to protect yourself from inflation, you might want to read this previous post: The value of your savings may go down as well as down

Pounds & Pennies is my little place to geek out about economics, personal finance and markets. If you’ve enjoyed this piece and would like to read more, please consider hitting the subscribe button below.

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If you think someone else would enjoy it too, sharing is the single biggest thing you can do to help Pounds & Pennies grow. Thank you – Ben.

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As always, nothing in this article should be considered financial advice. I write for fun and am not a financial advisor. The analysis here is intended to be informative and thought-provoking, not a recommendation to buy, sell, or do anything with your money.

What the chart shows is that “real” house prices in the UK are close to the lowest they have been in the last 20 years.

In inflation-adjusted terms, buying a house today is 25% cheaper than it was in 2007. I think that sentence will surprise a lot of people.

This all seems counter to the consensus you hear a lot right now.

You will regularly see stories about how house prices are impossibly unaffordable. Speak to someone younger, and they might feel that they have little to no chance of getting onto the housing ladder.

So, I decided to do some digging.

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What do we mean by “real” house prices?

Firstly, let’s explain the chart above a little more clearly.

“Real” means that the figures for the house prices have been adjusted for inflation. Because, as you may know, one pound today does not buy as much as one pound did 20 years ago.

So, whilst house prices may have risen in terms of their list price (often called their “nominal” value), on a relative basis they may not have when removing the effects of inflation.

If we adjust for inflation, it allows us to compare prices more meaningfully across time.

The first thing I found when digging deeper is that the last 20 years are probably not the most helpful period to analyse. As that time period starts at a point at which house prices were at their peak.

If we zoom out a little, it paints a different picture.

Look at the chart above, which shows the same information but for a longer period (1975 to the present). We can see that whilst they have come down in real terms recently, they are still elevated. Approximately twice what they were before the early 2000s.

Another lens on affordability – the house price to earnings ratio

A more common way of expressing housing affordability is by looking at the price-to-earnings ratio.

The reason people like this measure is that it allows quick comparison across the years without worrying about the effects of inflation. It simply compares house prices vs earnings today to house prices vs earnings historically.

Take a look at the chart below. It shows that since 1984 the ratio of house price to average earnings has risen from around 4(ish) to around 7(ish) in recent times.

What this means is that if you received your total salary before tax (!) and didn’t spend any of it, then it would take you, on average, 7 years to buy your house.

Clearly, we all have taxes to pay and putting all your income solely into your house is generally considered less than ideal. But you get the idea.

On the face of it, houses have become significantly less affordable than they were for your parents (or grandparents).

But is this the whole story? Most people stop at the chart above, but let’s dig a little deeper.

The price of your house is not the price of your house

As it turns out, what you pay for your house is not the price you bought it for.

Unless you are paying cash – in which case well done to you – you will likely have a mortgage.

That means you are charged interest each year for the money you borrowed. By way of brief example, if you bought a house for £300K with a 25-year mortgage at a 5% interest rate, you would pay £526K over the lifetime of the mortgage period.

The implication of this is that what you really pay for your house is not just linked to the price you bought it for. It also depends heavily on the prevailing interest rates you’re paying.

A different measure of affordability – percentage of earnings spent on paying your mortgage

To demonstrate this effect, I plotted a different analysis.

I calculated, for each year in question, what the mortgage rate would be if you:

• Purchased the property with a 90% loan-to-value mortgage i.e. a 10% deposit; and

• Secured that mortgage at the prevailing Bank of England interest rate at the time.

(I’m aware there are holes in this methodology, but I think it gives us a simple and good basis for historical comparison.)

I have then calculated what percentage of gross earnings those mortgage payments equate to for an average earner.

If the percentage is higher, that means average homeowners need to spend more of their earnings on just paying the mortgage (i.e. less affordable). If the number is lower, they need to spend less (i.e. more affordable).

You may spot that this measure of affordability has risen in the last few years (i.e. mortgages have become less affordable). This is because recently we have experienced rising interest rates – originally driven by high inflation and then accelerated by Liz Truss and Kwasi Kwarteng’s “mini budget” of 2022.

However, on a historical basis, mortgage payment affordability is better than it has been at many points over the last 40 or so years. Hence, I say, maybe it’s okay to go a little easier on “Boomers”.

The “golden” periods of high mortgage affordability were during the 1990s and 2010s but for different reasons.

In the 90s, interest rates were higher than they are now (they actually peaked at 15% in 1989-90), but prices were lower in “real” terms.

During the 2010s, we had a historical period of low interest rates following the Global Financial Crisis. So even though prices were higher, they were more affordable as mortgages were cheap.

To end this section on a positive, whilst I don’t have a crystal ball, we can see the measure on our chart does appear to be rolling over. We can but wait and see…

The great barrier to entry – don’t forget the deposit

For anyone who’s bought a house (or thinking of buying), you’ll know this is one of the biggest hurdles.

I found it quite difficult to get historical data on deposits that I felt I could rely on.

But if we assume that a first-time buyer on average puts down a 10% deposit, we can create a “deposit to earnings” ratio chart below.

As you may expect, deposit-to-earnings has risen over the last 40 or so years in the same way that the house price-to-earnings ratio has.

So, whilst mortgage interest may be high but not historically high, the barrier to getting on the ladder (i.e. the deposit) has gotten significantly harder. Lower monthly payments don’t help you if you can’t get through the door in the first place.

This is why we hear a lot of talk about the “bank of mum and dad”, as that is often the easiest way (in some cases the only way) of securing one. That is, assuming you are fortunate enough to have parents who can help out.

In the same way that we cannot look at house prices in isolation from mortgage payments, we cannot look at mortgage payments in isolation from the deposit.

So, what does this all mean?

Well done if you made it this far! Just to summarise the key findings:

1. Real house prices are lower at the moment relative to the last 20 years, but still high when we look beyond that (i.e. 40+ years).

2. House prices to earnings have gone up significantly over the last 20 years to a ratio of about 7. In particular, the implication of this is that it makes securing a deposit to buy your first home difficult.

3. The amount of money you spend on monthly mortgage payments may have gone up recently (in the last few years) but is not as historically high as it has been.

To end on a more action-oriented note, here are some practical considerations if you are aiming to buy soon, aside from “having rich parents”:

• Consider lower-cost areas – I have not discussed regional variations in this post, but they are significant (London / South vs. the Northeast is still approximately 2x).

• Shop around to secure a good mortgage deal and review it regularly – many people forget the “review it regularly” part of this statement. Use a broker to help compare the whole mortgage market for suitable deals.

• Save cleverly for your house deposit – obviously this is easier said than done, but there are tools you can use to your advantage. For example, the Lifetime ISA in the UK gives you a 25% government top-up for first-time buyers.

• Don’t be afraid of, or look down on, renting – this option is not always as bad as everyone thinks, and there can be real financial advantages of doing so (but that’s one for a future post).

I’d love to know – are you on the ladder, trying to get on it, or have you given up trying? Let me know your views on housing affordability in the comments.

Pounds & Pennies is my little place to geek out about economics, personal finance and markets. If you’ve enjoyed this piece and would like to read more, please consider hitting the subscribe button below.

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If you think someone else would enjoy it too, sharing is the single biggest thing you can do to help Pounds & Pennies grow. Thank you – Ben.

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As always, nothing in this article should be considered financial advice. I write for fun and am not a financial advisor. The analysis here is intended to be informative and thought-provoking, not a recommendation to buy, sell, or do anything with your money.

Surely, they’d be better off spreading out and capturing different customers? It seems counterintuitive.

The reason they do this, it turns out, involves game theory.

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This phenomenon of co-location does not just apply to fast food. You see similar examples everywhere.

Walk down a high street in the UK, and it’s common to find a Starbucks, a Costa and a Pret all in close proximity. You’ll often find petrol stations on opposite sides of the road. Or large department stores that are very close to each other.

In Hong Kong, there is a street almost entirely dedicated to shops that sell electronics (Apliu Street). In London, jewellery dealers and retailers gravitate to Hatton Garden. Many cities have “restaurant districts” which, in some cases, have the same type of cuisine. Think Chinatown in London, Koreatown in LA, Greektown in Toronto, etc.

Whilst there are several reasons which can explain this “clustering,” one interesting explanation can be found in economic game theory.

The theory is one created by Harold Hotelling — an American economist and statistician – and is called his “Model of Spatial Competition.”

To understand this in more detail, we’ll explore a scenario that is often used to explain Hotelling’s model — an ice cream vendor on a beach.

To make this a little easier, let’s make a few assumptions:

• The beach is 2 km long

• Beach-going customers are spread across the beach evenly

• People like to eat ice cream (not too contentious!)

• Vendor stalls are mobile

A single lone ice cream vendor

Now, imagine an ice cream vendor called Tom showed up to sell to customers on the beach.

At this point, Tom is the only one selling ice cream. He has a monopoly on the beach. As such, it would not really matter where he sets up his stall, as he would capture the entire market for ice cream on the beach. He gets 100% of the sales.

However, naturally, it would make sense for Tom to set up at the midpoint of the beach. That way, customers wouldn’t have to walk more than 1km to buy ice cream.

Tom gets all the sales to the west and the east of the beach, as shown in my beautifully drawn diagram below.

Competition on the beach

Now, imagine a new ice cream vendor called Sam enters the market. Sam is selling the same ice cream that Tom is.

Whilst a little annoyed that Sam has moved onto “his” beach, Tom decides to be grown-up about it. He has a conversation with Sam, and they agree to split the beach in two, with Tom at the one-quarter mark and Sam at the three-quarter mark.

This way, they share the customers equally along the beach. This is again represented in the diagram below.

Tom captures all the customers to the west of his stall and half the customers in the shared middle. Sam does the same at the other end of the beach.

From the perspective of people on the beach collectively, this is the optimal outcome. The maximum distance travelled by any customer is minimised to 0.5km.

In economics, we refer to this situation as “socially optimal.” In other words, it’s the best outcome for (beach) society as a whole.

A sneaky move

The next day, Tom arrives at the beach to set up his stall. He finds, contrary to their agreement, that Sam has decided to locate his stall just east of Tom’s, as shown below.

As such, Tom only gets a quarter of the whole market to the west of his stall. Sam takes the remaining three quarters to the east. Not a great situation for Tom!

Two can play at that game

Not wishing to be outdone, later the same morning, Tom moves his cart a little further to the east of Sam’s. This way, he will now take the lion’s share of the beach to the east.

This little game of cat and mouse continues throughout the day until both vendors end up at the centre of the beach. In this situation, they both share the market evenly once again.

Under this scenario, neither Tom nor Sam is incentivised to move their stall to the east or west anymore.

In economics, this situation is known as a “Nash equilibrium” — there is no longer an incentive for either competitor to deviate from their chosen strategy.

But individual rational behaviour and collective welfare aren’t the same thing. In fact, they’re often opposites.

The problem is that we no longer have a situation that is optimal from society’s point of view. Customers are back to having to walk up to 1km to buy ice cream. This is the same as when Tom was a monopoly vendor!

Had Tom and Sam split the beach evenly as they had at the start, they would still have the same sales, but customers would have only had a maximum of 0.5km to walk. Unfortunately, this scenario is inherently unstable as each vendor is motivated to “cheat” to capture more of the market.

Competition doesn’t always give consumers what they want. Sometimes it gives them two ice cream stalls side by side and a long walk back to the sun lounger.

From beaches to ballot boxes

It’s worth saying that Hotelling’s theory doesn’t just apply to physical geography. We can extend the concept to other forms of virtual colocation. For example:

• In two-party political systems, rather than promoting distinct platforms and policies, we often see parties drifting toward the centre to capture the median voter. This is also known as the “median voter theorem”.

• You may have noticed that many airlines competing on the same route tend to cluster their flights around popular departure times.

• TV scheduling is also a classic one. For example, in the UK, the BBC and ITV networks deliberately scheduled Strictly Come Dancing and The X Factor in a head-to-head slot on Saturday evening. A prime-time Nash equilibrium (at least until The X Factor was eventually axed).

Conclusion

The simple example presented offers insight into one reason competitors may choose to co-locate.

This phenomenon – where individually rational decisions can result in a collectively worse outcome – is also at the heart of another famous concept in game theory called the “Prisoner’s Dilemma”. (More on that in a future post.)

So next time you’re with someone and see a McDonald’s close to a Burger King, don’t say “that’s bad planning.” Instead, you can say “that’s a Nash equilibrium.” It’s guaranteed to make you friends…

Pounds & Pennies is my little place to geek out about economics, personal finance and markets. If you’ve enjoyed this piece and would like to read more, please consider hitting the subscribe button below.

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If you think someone else would enjoy it too, sharing is the single biggest thing you can do to help Pounds & Pennies grow. Thank you – Ben.

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As always, nothing in this article should be considered financial advice. I write for fun and am not a financial advisor. The analysis here is intended to be informative and thought-provoking, not a recommendation to buy, sell, or do anything with your money.

Time in the market is better than timing the market.

In other words, the best advice is to keep your money fully invested and not to try to “time” when you enter and exit.

This piece of conventional wisdom is widely accepted. Indeed, there are personal finance writers everywhere who advocate this approach.

But is it actually correct?

This broad statement is a little too definitive, and like many things, there is more to it when you scratch a little further.

Also, if you were to research market timing studies, you’ll notice many of these come from investment management firms. Funnily enough, the people telling you not to time the market are usually the ones paid to keep your money invested.

In this article, I present an analysis of this common piece of ‘wisdom’ and offer some alternative conclusions.

To be clear up front – I’m not talking about day-trading or trying to call individual days in the market. The question I want to dig into is more nuanced, i.e. whether broader, longer-term timing decisions can ever pay off.

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The conventional argument against trying to time the market

There are many studies that you may have read that conclude it is better to stay invested the whole time. This is rather than trying to optimise when you are invested and when you’re not.

The argument for this is that the average investor is unable to time the market well. They sell when the market is low and buy when it’s high. As a result, they end up making things worse for themselves.

Most of the studies use a similar method to prove this hypothesis. They will usually look at a long period (e.g. 10–20 years) for a particular index (e.g. the S&P 500). Then they show the impact on your investment if you were to “miss” the 10 or 20 “best days” of the market by trying, unsuccessfully, to time it.

I’m not going to reference specific studies here. Partly because there are so many, but also, my purpose here is not to criticise any particular one.

As such, instead, I’ve created my own similar analysis below.

For this, I’ve:

• Taken the period of analysis from 1 Jan 2000 to 31 Dec 2025 (i.e. 26 years).

• Used the S&P 500 as my index to analyse.

• Assumed an initial investment of $10,000.

I’ve then compared what that investment would have been worth at the end of 2025 under 3 scenarios:

1. Investor stays fully invested

2. Investor misses out on the 10 best days

3. Investor misses out on the 20 best days

I’ve shown the outcome in the chart below.

The results, unsurprisingly, support conventional wisdom.

If you missed the 10 best days, you would only have $20,745 to your name rather than $46,592.

That’s a whopping 55% less than if you’d stayed invested the whole time! Or put another way, your annual rate of return would be 2.8% rather than 6.1%.

An alternative analysis

The numbers above do make a fair case. But the flaw in the above analysis is the assumed randomness of the “best days” in the market. The argument is that you can never know when they are, so it’s better to stay invested.

But in reality, the best days in the stock market tend to occur during bear markets. Often, the biggest rallies in stock prices happen shortly after there has been a big drop. This is known as a “bear market rally”.

If we look at when these best days occur, this seems more intuitive. The 10 best days in my sample all happened in one of the following months:

• October 2008

• November 2008

• March 2009

• March 2020

• April 2020

• April 2025

Three relate to the Global Financial Crisis, two to the COVID pandemic and the most recent to the introduction of Trump’s broad-sweeping tariffs. As such, so that you can ‘benefit’ from these best days, you need to be prepared to suffer the bad market periods.

But what if we took a more nuanced approach?

I’m not suggesting you will be able to precisely time buying and selling on individual days. But what about whole months?

In the analysis below, I’ve modelled the returns if you were not invested for the entire month in which the best days occur. The results are quite striking.

Between 2000 and 2025, if you’d entirely missed those months that included the 10 best days, you’d perform better than if you were fully invested. 23% per cent better in fact (or a 6.9% annual return rather than 6.1%).

In other words, it’s okay to miss the best days, as long as you miss the other days near them too.

This same logic applies to the months with the 20 best days, with better results still.

We can extend this analysis even further. What if we had entire years where we were not invested? In this case, we don’t need to pick the day or month. We ‘simply’ need to get the year right.

In the chart below, I’ve conducted the same analysis but excluded the years where the best days occur.

The findings are quite interesting. Missing the years with the 10-best days performs similarly (marginally worse off). However, for the 20-day scenario, you are significantly (93%) better off. That is almost double the returns of “stay invested”!

Note: In my analysis, I’ve excluded dividend reinvestment, which I know will draw some criticism. But I’m confident this doesn’t change the insight this analysis can offer us.

What can we learn from this?

So, what can we take from this to inform our investment approach? Well, to my mind, there are a few things.

1. When the market falls, don’t panic

This is a broadly accepted principle.

The analysis above does suggest that the best days happen during bear markets. Or at least close to bad days.

As such, if you are invested at these points, then conventional advice not to “panic sell” is sound. Indeed, this is a common criticism of the average investor. They sell into a bear market, thereby missing the subsequent bounce and recovery.

2. When the market falls, consider buying more

This requires a much bolder approach.

But, given that good days happen in bear markets, the logical thing, if you’re not invested, would be to buy during those bad periods.

This is much easier said than done. Particularly as you never know when the downside is over. You will need to be prepared to weather more bad days after you’ve bought before you see any upside.

Those prepared to be brave can reap significant rewards. For this reason, it may be sensible to keep some “dry powder” (cash) available to take advantage of these occasions.

3. Market timing can be rewarding if you’re prepared to do your homework

As we can see, if you’re able to stay out of broad periods of poor performance, then the rewards can be great. This is again much easier said than done.

A related approach is to gradually make changes to your portfolio over time. As markets become overvalued, consider modifying your weighting for those specific assets in your portfolio.

Just by way of example, one way to do this is to consider broad valuation ratios (such as the CAPE ratio) and rotate funds from specific countries or sectors that are relatively overvalued into those that are undervalued.

4. Time in the market is probably still the best strategy for most

Having said all this… In the end, trying not to time the market is likely still the best strategy for the average investor.

It has a much lower effort requirement. And if you’re not prepared to do a lot of work, being invested for long periods still pays very well. Unless you are very talented, if you try to dip in and out (or panic sell), we can see that this often leads to worse performance over time.

If you’re going to time the market poorly, it’s better not to try to time it at all.

Pounds & Pennies is my little place to geek out about economics, personal finance and markets. If you’ve enjoyed this piece and would like to read more, please consider hitting the subscribe button below.

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If you think someone else would enjoy it too, sharing is the single biggest thing you can do to help Pounds & Pennies grow. Thank you – Ben.

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As always, nothing in this article should be considered financial advice. I write for fun and am not a financial advisor. The analysis here is intended to be informative and thought-provoking, not a recommendation to buy, sell, or do anything with your money.

The value of your investments may go down as well as up.

This serves as a warning to prospective investors. It plays an important role in reminding us of the potential risks and volatility of investing our money. Everyone should know that they may invest one day and lose 20-30% of their money overnight. It happens.

However, the particularly pernicious implication of this one warning is that many people choose never to invest. Opting instead to keep their money “safe” in a savings account.

It might also be the worst decision they could make. And I can prove it – using Big Macs.

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The illusion of safety

There is a sense of security that comes with putting money in a savings account.

Aside from the low likelihood that your bank will go bust (though this did happen to me once), your money will typically be okay. The Government even protects you from bank insolvency up to a certain value – for the UK, this is £120,000 at the time of writing.

It can also be quite satisfying to see your savings grow over time. “Look, that £1,000 I had saved has earned me £37 this year!”

However, your savings aren’t “safe” in the way you think they might be. They are slowly being eroded day by day, year by year, by a silent thief. The thief called “inflation”.

A savings account feels safe because the number never goes down. But that number is a lie.

You don’t actually have £1,000; you have 526 Big Macs

To understand inflation properly, you need to understand that you don’t have £1,000 in savings.

Money is not a “thing” – it is a claim or voucher that you can exchange for goods and service. So we need to express our £1,000 in terms of something we can buy to understand its true value.

In this case, I’m going to use Big Macs.

Why Big Macs?

Well, for one thing, there is readily available historical price data on them. The Economist tracks this data via their global “Big Mac Index”, which aims to compare purchasing power across countries. We are not using it for international comparisons, but we can use it to get the price data.

More broadly, Big Mac prices are actually a pretty good proxy for inflation or “the cost of living”. Because to produce a Big Mac, you need many inputs – food, energy, wages, transport, and rent. So, the price of them collectively incorporates the rising cost of all those inputs.

Now, if we cast our minds back to the year 2000. Imagine you had the princely sum of £1,000 in your savings account. Back then, a Big Mac in the UK cost about £1.90. Your £1,000 would have enabled you to buy 526 Big Macs if you so desired. Enough for a weekly indulgence for 10 years!

Now fast-forward to today, 2026. A Big Mac typically will set you back £5.29. That same £1,000 will only buy you a measly 189 Big Macs… That is over 60% fewer than in 2000.

Inflation isn’t a number in the news. It’s the difference between 526 Big Macs and 189.

Ah, but what about those interest earnings on my savings?

You would be right to point out that most would not just leave £1,000 sitting idle in their current account for 25 years, earning no interest (though many do!). They might instead choose to put that money into a savings account earning the going interest rate.

You may think that this would help them keep pace with the rising cost of Big Macs.

But you would be wrong.

To illustrate this, see the chart below.

The red line shows how many Big Macs you would have been able to buy if you earned no interest on your savings.

The blue line shows how many you would be able to buy if you were able to earn the going Bank of England interest rate at the time. (NB: This is quite a generous assumption; you would probably earn less than that).

As you can see, even if you were to keep your £1,000 in a savings account and let it compound, by 2025 it would still only buy you 353 Big Macs. Better than the 189 you’d get if you earned no interest, but still a lot worse than your original 526.

Put simply, the cost of living has risen faster than the interest you earn on your savings to compensate for that.

The eagle-eyed among you will notice a “golden age” for savers in the early 2000s. At this point, your savings were outpacing inflation at the time. But over the long term, savers have seen their purchasing power decline.

And what if I’d invested the money instead?

As you may have guessed, the “solution” here is to invest your money rather than save it. History has shown that, over the long term, those who invest (in, say, the stock market) are most likely to outpace inflation.

To model this impact, I’ve added a third, gold line to the chart below. This shows how many Big Macs you’d be able to buy if you had invested your money. In this case, I’ve assumed you had it invested in a global equities tracker fund (a basket of international companies listed on the stock market).

As you can see, the value of your initial £1,000 increased from enabling you to buy 526 Big Macs in 2000 to 1,225 in 2025. That is more than double! But that is not all. This is six times as many as if you’d simply held your savings in a current account.

At this point, it’s worth pointing out that you would have had to weather some painful moments, e.g. the Dot-Com Bubble in 2000 and the “Credit Crunch” crash in 2008/9. Remember, the price you pay for bigger long-term investing gains is volatility.

However, history repeatedly shows that, over the long term, this approach wins time and time again.

You have a simple choice

There are no certainties in life, only probabilities.

So here is the actual choice in front of you – stripped of the jargon and the disclaimers:

A) Save your money over the long term and have a very high probability of slowly losing its purchasing power; or

B) Invest over the long term, accepting there will be significant ups and downs, but with a high probability that you will grow the purchasing power of your investment over time.

It is, in the end, a question of psychology. People tend to fear the dramatic, one-off risk (e.g. a plane crash) more than the slow but often equally deadly one (e.g. living an unhealthy lifestyle).

It would be wrong to end this article without a brief nod to the benefits of saving.

There are many good, valid reasons why you may want to save and not risk your money, particularly if you need it over the short term (<3 years). For example:

• Saving to build an emergency fund;

• Rebalancing into cash during retirement;

• Saving for a major purchase (like a house deposit or a wedding). I’m currently setting aside some money in savings to renovate my garage over the next 6 months.

If that’s you, this calculus changes – invest only money you won’t need in the short term. [And when you do invest, try to do it tax-efficiently, e.g. a Stocks and Shares ISA lets your returns grow free of UK income and capital gains tax.]

The purpose of this article is not to bash savings, but to highlight that the perception of “safety” is more of an illusion than a reality. So, make the choice carefully and deliberately.

The riskiest thing you can do with your money is nothing.

£1,000 will still buy you 189 Big Macs today. But it won’t forever.

Right, I’m off to McDonald’s for a Quarter Pounder (I don’t like Big Macs).

Pounds & Pennies is my little place to geek out about economics, personal finance and markets. If you’ve enjoyed this piece and would like to read more, please consider hitting the subscribe button below.

Subscribe now

If you think someone else would enjoy it too, sharing is the single biggest thing you can do to help Pounds & Pennies grow. Thank you – Ben.

Share

As always, nothing in this article should be considered financial advice. I write for fun and am not a financial advisor. The analysis here is intended to be informative and thought-provoking, not a recommendation to buy, sell, or do anything with your money.