Markets are unpredictable. Part of being a long term investor is bearing the uncertainty of the market. Will it go up this year? Or down?
Study after study shows* that most DIY investors make poor market timing decisions. When markets go down, people get antsy. It’s HARD to see your assets go down in value. The KEY is staying invested.
Last year the S&P declined 20% (9/20-12/24). Ouch! A lot of people felt the pain. Some investors pulled their money out of the market and opted for safer investments. Then, in only 4 weeks (12/26 – 1/17) the S&P gained 12%. That’s a solid year’s worth of return in a single month!
For your co-worker that sold out of the market and went to cash, they just lost 12%. And they can never make it back.
While I cannot predict the short term movement of the stock market, I do know that markets have rewarded long term investors who consistently expose their portfolios to diversified risk.
For investors who stayed invested this holiday season, pat yourself on the back. You may have captured a 12% return that other less-disciplined investors missed while they were in cash.
*Read this article about the Dalbar investor study.