- The importance of staying invested.
Returns and principal invested in stocks are not guaranteed. Historically, stocks have been more volatile than bonds and cash. Holding a portfolio of securities for the long term does not ensure a profitable outcome and investing in stocks always involves risk of loss. However, over long periods stocks have outperformed bonds comfortably.
- The market eventually recovers.
Markets tend to recover post witnessing significant drawdowns. The chart underscores this listing events wherein markets have witnessed sharp corrections, and how markets have bounced back subsequently posting significant gains.
- Market timing has a cost.
Equities have been more volatile than other asset classes. The high volatility has often led investors to try and time the markets, by exiting and entering at their perceived opportune times. The chart signifies the importance of staying invested, as missed opportunities can significantly dent long term returns.
- Staying in for the long run decreases the potential of loss.
Holding stocks for the long term does not always ensure a profitable outcome and involves risk of drawdowns. However, over longer periods the probability of losing money in stocks declines as seen in the chart.
- Market timing has a risk
Although successful market timing may improve portfolio performance, it is very difficult for an investor to time the market consistently. In addition, unsuccessful market timing can lead to a significant opportunity loss. The chart shows comparison of annual returns and returns assuming the best month has been missed.
