It has been a tough start to the year for many investors. Here are 4 facts about market volatility and ways to think about long term investment success.
1. More Good Days Than Bad Days
There may be bad weeks and those can be tough! While declines in the market happen from time to time, these declines occur far less frequently as compared to advances. Additionally, market advances are not only more frequent but they are also outsized.
2. It Pays To Stay Invested
Missing the best 3 months (in the last ten years) for Syfe Core Equity100 can cut your overall return by 22%. Missing the best 6 months reduces an investor’s total return by almost 40%.
By pulling out of the market, investors could miss a few bad days, but they will also end up missing all the good days that follow.
As Vanguard’s founder Jack Bogle put it: “it’s about time in the market, rather than timing the market.” Staying invested is the key to long term success.
3. What Are Other Investors Doing?
In the recent survey done by JPMorgan (as of Feb 11, 2021), majority of their institutional clients have maintained their overweight allocation to the global equity sector despite the recent correction for US growth stocks.
Institutional investors polled believe that equities still offer the best investment opportunity despite recent market volatility around US growth stocks.
4. What Can You Do?
- Know your portfolio (strategies, ETFs, funds, and stocks or more) and take the time to check that your portfolio is diversified.
- Stay The Course: Even ‘Suay’ is better than ‘Kiasi’.
‘Heng’ Henry: Henry has the best timing ever. He deploys $10,000 each year at the lowest point.
‘Steady’ Stacey: Stacey splits her $10,000 into 12 equal portions, investing monthly into Equity100. This is also known as dollar-cost averaging (DCA).
‘Suay’ Susan: Susan deploys $10,000 at the highest closing level each year.
Henry, Stacey and Susan invested in Syfe’s Core Equity100 portfolio from Jan 2012 to Dec 2021 (10 years) while Kit held cash.
‘Kiasi’ Kit: Kit thinks that he can time the market but ends up not investing and leaves $10,000 in cash thinking that a sell-off is round the corner. We have used 30 day Treasury Bills as a proxy.
These scenarios are inspired by research conducted by Schwab.
No surprises that Henry does the best, but perhaps unexpectedly Stacey is not far behind! Even Susan, who has the worst luck possible, made almost 2 times more than Kit, who was indecisive and kept his funds in cash.
No one can be Henry, but we can definitely be more like Stacey, investing consistently over time and staying on course.