Table of contents
- More good days than bad days
- It pays to stay invested
- What are other investors doing?
- What can you do?
It has been a tough year for many investors. Here are four facts about market volatility and ways to think about long term investment success.
1. More good days than bad days
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?
Despite this year’s tough market conditions, investors have been net buyers of US equity funds so far. According to Morningstar research, monthly inflows to US equity funds have been positive for five out of the past eight months. Estimated net inflows have reached about $62.5 billion in the year to date through 31 August 2022.
One likely reason that equity-fund investors have mostly held tight despite the volatility is because many of them are investing for long-term goals such as retirement.
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. 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 an all-equity portfolio that tracks the MSCI World Index fund from January 2012 to September 2022.
‘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.
No surprises that Henry does the best, but perhaps unexpectedly Stacey is not far behind! Even Susan, who has the worst luck possible, made much 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.