There is no question that we are in interesting times for investment markets and we have all seen falls in the value of our portfolios This article is designed to explain why you really should not worry and why you need to remain invested.
The key thing to remember is that to make money over the long-term it is not about timing the market, but about time in the market.
No one likes to see falls in value but this is part and parcel of investing, with all types of investment. Nothing has a continuous upwards trajectory but short-term wobbles invariably have very little effect over the long-term.
I wrote about investing in volatile times in February, see here but I’d like to give you some more information that should provide some comfort, whether you are currently invested, or thinking of doing so.
Major geopolitical and macro-economic events, including most recently the coronavirus pandemic and the Russian invasion of Ukraine, increasing inflation, global supply-chain issues and general uncertainty can lead to a fall in stock markets but as I have said many times, this will not be forever, and time will make things come good.
It is always essential to take a long-term view when investing, and you need to understand how missing the best performing days could lead to a portfolio significantly underperforming. No one has a (working) crystal ball and trying to time peaks and troughs is a mug’s game.
Trying to time the market can seriously damage your investment returns
Take a look at this table that shows global events and the return of the MSCI World Index in Sterling.
(You can click on these tables to expand them.)
What can seem like a huge event at the time and a major worry in terms of investing is usually no more than a blip just a couple of years later.
The dangers of missing the best performing days
It is always essential to take a long-term view when investing, and you need to understand how missing the best performing days could lead to a portfolio significant underperforming.
The best bet is actually to be invested. This table clearly shows that just by missing a few days, usually by having sold funds or encashed investments when trying to second guess what might happen, you will lose out.
Despite temptations to switch into cash during difficult times, data shows that missing out on just the 10 best market performing days can have a big impact on long-term returns
No one can accurately predict the bottom of a market and as these tables show, it is far better to be in and biding your time than to be hoping you get timing right, as that is an impossible task.
One of the most common reasons individual investors lose money is when they try to time the market, trying to avoid the worst days of the stock market by cashing out and then re-investing when they think the market is going to pick up. The reality is that the best and worst days of the stock market cluster. Try to miss the lows and you’ll probably miss the highs too
Why sensible investment matters
I make it clear to all my clients that markets can fall as well as rise, and that is in writing too, and that we are all going to see a fall in value, on paper at least, at some point. This is normal when investing in equities.
My clients are all invested in line with their personal tolerance for risk, in a range of managed investment funds, in different sector and areas. Not all asset classes behave in the same way at the time so a we need to have the right degree of diversification. The right mix of funds will show a more measured return, up or down, than individual shares, and all funds are properly researched to make up a suitable portfolio.
I have been in this business for many years, more years than I care to admit to, and I have worked though many ups and down, and several market crashes. That means I know what really works over time. Being a safe pair of hands matters. Having patience will make a difference.
Professional investment advice is about doing the right things for you, not gambling with your money to making false promises. I am here to manage your investments properly, to secure your financial future, over years – not weeks or months. We may be in a bit of bear market but it won’t be forever.
As the tables here, and in the previous related article show, you just have to be a little patient for market growth to return. And it will.
It can also be argued that now is a good time to invest for the long-term and I have low-cost and flexible options for expats. See this article: The future of investing is… flexible
To arrange a discussion about investing, or on any aspect of your personal financial planning, please email me at firstname.lastname@example.org I run my own set-up under the Holborn Assets umbrella.
I write articles such as this one as part of the holistic personal financial planning service and that I provide to expats, and the general consumer, financial and legal information that I provide in The National newspaper, on radio, and in the Facebook group British Expats Dubai.
Please take a look at the other useful articles on this website.
The right advice for nice people
- Tables courtesy of Brooks Macdonald.