Understanding Overnight Drift
Many people believe that stock market gains occur during trading hours. However, recent data reveals a surprising fact: most of the market’s returns actually happen overnight. This phenomenon is known as overnight drift’. It shows that a significant portion of stock market gains occurs when the market is closed.
Source: Investinq on X
Analyzing 30 Years of Data
This analysis (see image above) utilizes S&P 500 data from the past 30 years, comparing returns made during the day with those made overnight. If someone had invested $1 in 1994 and remained fully invested, that amount would have grown to approximately $15 today. However, if that same $1 had only been invested during market hours—buying at the open and selling at the close—it would have decreased to just $0.87. This illustrates that the real gains come from holding stocks overnight, rather than engaging in day trading.
The Power of Staying Invested
The data emphasizes a clear message: staying invested in the market is more rewarding than attempting to trade. Day trading, where individuals buy and sell stocks within a single day, often yields little to no return in the long term. Conversely, investors who maintain their positions even while the market is closed tend to enjoy far better returns. The movements in stock prices—referred to as ‘gap-ups’ and ‘gap-downs’—occur primarily during these overnight periods.
Investing Beats Trading
This insight is crucial for all types of investors. Those who try to time the market or engage in frequent trading may be missing out on substantial gains. Success in the stock market isn’t about being quicker or smarter during the day; it’s about the willingness to keep investments overnight and allowing the market to grow over time. This is where compounding truly takes place, enabling wealth to build steadily.
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