I would *not* sit out the market for 30 days. The market goes up on average so you're hurting yourself on average if you do that.

I can't give you tax advice, but from what I've read, people haven't had trouble with the IRS if the buy a different index fund even if it has some similar stocks in common.

Before today I was convinced that the market volatility would wash out any gains over a 30 day period. Yes I know the market goes up on average, but that's when you zoom out and look over a multi-year span - I doubted you could actually see this in a 30 day interval.

But I proved myself wrong. I downloaded the historical closing prices of VFINX starting from 1/2/1980 until today. I looked at the percent difference in closing price for day N and day N+31 for all days in the dataset (except for the last 30 days in the set for obvious reasons).

Here's what I found:

Median difference: +1.07%

Average difference: +0.73%

On 31 day intervals where VFINX closed higher:

Median difference: 2.92%

Average difference: 3.52%

On 31 day intervals where VFINX closed lower:

Median difference: -2.56%

Average difference: -3.59%

Conclusions:

1) In more cases than not, you are better off finding a similar fund because you don't want to sit out of the market.

2) The market crashes harder in 31 day intervals than the market gains in 31 day intervals. Notice how the average percent difference when it closed lower 31 days later is greater in magnitude than the median percent difference.

You can also see this in the histogram - there are more bins populated in the left tail than the right tail.

I've attached the histogram of the data. If anybody wants me to pull out more statistics from this data I can give it a shot.

P.S. Unfortunately I have ignored dividends in this analysis. As we all hopefully know, a dividend's issuance causes the price of the security to drop. However, this can only mean that some of those closing prices should be higher if you factor in the fact that you received a dividend, which only makes the conclusion even stronger than you should not sit out of the market.

Thank you forummm for challenging me on this - I wouldn't have done this analysis otherwise.

EDIT: To do this correctly I'd have to compare VFINX price on day N to a that of a correlated fund on day N+31, such as VTSMX. However, I compared VFINX to itself because I wanted a dataset that went back many years.