A rough quarter puts investors in a familiar bind: watch the losses deepen, or step back until conditions improve. While stepping back may feel like the safer choice, historical data on market timing and past market recoveries suggests it's often the more expensive choice.
Consider the first quarter of 2026. The S&P 500 finished the three months ending March 31 down roughly 4.3%, and sentiment soured enough that talk of a further slide became common. Then the index climbed approximately 12% over the following 13 trading days. “If you’d have listened to conventional wisdom, you would have missed a move in two weeks that was a year's worth of returns,” says Dana Portfolio Manager David Stamm.
That pattern isn't unique. It shows up often enough in market history to change how an investor might think about a rough stretch.
Stepping out of the market during a downturn is the easier of two decisions. Getting back in before a recovery is already underway is the harder one, and research suggests it's where most of the damage happens.
J.P. Morgan Asset Management's analysis of the S&P 500 over the 20 years through February 28, 2025, found that an investor who missed the 10 best trading days earned an annualized return of 6.37%, versus 10.60% for an investor who stayed fully invested. Those days are difficult to catch because they tend to arrive close on the heels of the worst ones: Seven of the market's 10 best trading days occurred within 15 days of its 10 worst days.1
Dana Portfolio Manager Sean McLeod puts it this way: “We don’t know if the market's going to go up today or tomorrow or next week or next month. But we do know that over the long term, the market goes up, and we want to participate in that rally. That’s why Dana doesn’t make short-term calls on market volatility.”
The gap between market returns and investor returns is well documented and persistent across market cycles.
Morningstar's 2026 Mind the Gap study found that over the 10 years ended December 31, 2025, the average dollar invested in U.S. mutual funds and ETFs earned 8.7% annually, compared with a 9.9% return for the funds themselves, a gap of 1.2% attributed to the timing and magnitude of investor purchases and sales. Morningstar found a comparable gap in each of the five rolling 10-year periods it studied, through December 31, 2025. The size of the gap also scales with volatility: funds in the least-volatile quintile showed an investor return gap of just 0.4% annually, compared with more than 2.0% for the most-volatile quintile.2
None of this suggests markets are risk-free, or that a downturn shouldn't be taken seriously. What it suggests is that avoiding a downturn only pays off if an investor also gets the second decision right: recognizing when it has ended, often before that becomes obvious.
Dana's equity strategies address this by removing the decision altogether: staying allocated to the market across conditions rather than shifting to cash and attempting to time a re-entry, holding roughly 1% cash regardless of the environment.
This isn't a prediction that every downturn resolves quickly, or an argument that volatility should be dismissed. It reflects a choice about where a portfolio manager's judgment is best applied: to sector exposure and individual stock selection, where skill and research can add value over time, rather than to guessing the market's next move, which the data above suggests is difficult to do reliably even with the benefit of hindsight on how often it fails. It's also a structural response to the volatility-driven gap Morningstar documents: a strategy that never exits is a strategy that doesn't give an investor the opportunity to mistime a re-entry.
A bad quarter raises the same question: is it time to get out? A more useful version of that question is whether the current strategy can hold up without requiring that decision to be made correctly, and then reversed correctly, within a short window.
For advisors, that is a more durable talking point during a rough stretch than reassurance alone. The strategy is not waiting for the recovery. It is positioned for it.
Why do investors often lose money trying to time a market downturn?
Market timing requires two decisions to go right in sequence: when to exit and when to re-enter. J.P. Morgan Asset Management's analysis of the S&P 500 over the 20 years through February 28, 2025, found that an investor who missed the 10 best trading days earned an annualized return of 6.37%, versus 10.60% for an investor who stayed fully invested throughout.
How close together do the market's best and worst trading days tend to happen?
Sharp rebounds are historically common in the immediate aftermath of steep sell-offs. Over the past 20 years, seven of the S&P 500's 10 best trading days occurred within 15 days of its 10 worst days.
Do individual investors underperform the market because of timing decisions?
Yes, and the gap is persistent. Morningstar's 2026 Mind the Gap study found that over the 10 years ended December 31, 2025, the average dollar invested in U.S. mutual funds and ETFs earned 8.7% annually versus a 9.9% return for the funds themselves, a 1.2% gap driven by the timing and size of investor cash flows. Morningstar has found a comparable gap in each of the five rolling 10-year periods it studied, through December 31, 2025.
What does it mean for an equity strategy to stay "fully invested"?
It means the portfolio remains allocated to the market across conditions rather than shifting to cash in anticipation of a downturn. Dana's equity strategies hold approximately 1% cash.
Does staying invested mean ignoring the risk of a downturn?
No. It reflects a view, supported by data on missed best days and the persistent investor return gap, that consistent market participation tends to outperform attempts to move in and out based on short-term conditions.
1 J.P. Morgan Asset Management analysis using Morningstar Direct, data as of February 28,
2025
2 Morningstar, “Mind the Gap 2026,” Jeffrey Ptak, CFA, August 6, 2026.