Take your time and be rewarded
The only constant in life is change; we know this, just as we know that investment markets go up and down on a daily basis. Logically the best time to buy anything, be it a car, home, boat or shares is when the price is at its lowest. Equally the most profit will be made by selling your investments at the peak of the market, when prices are at their highest.
However trying to accurately identify the low or high point of any market (referred to in investment terms as ‘timing the markets’) is virtually impossible even for the most experienced investors.
Surprisingly, the majority of investors who try timing the markets usually make less of a return on their investment than those people who make a decision to stay in the market for the long-term.
Don’t believe it? Let’s look at a real-life example. The graph that follows shows the impact of missing the best trading days (those with the largest increases) of the Australian share market, using the S&P/ASX 300 Accumulation Index.
Impact of being out of the Market
S&P/ASX 300 Accumulation Index June 1999 to June 2014
Source: Lonsec Research, Bloomberg, FE
If you had invested in the market from June 1999 through to June 2014, you would have received an annualised return of 8.61%. However, if you had mis-timed the market by buying and selling into the market and missing the top 50 trading days over the same period, the annualised return would have been -3.01%. Even if you’re being strategic about it, being out of the market can see you miss out on the rallies that tend to follow market falls.
Successful investors are not distracted by day-to-day market volatility; rather they understand the overall trend is for investment markets to rise over time. They remain invested for the long-term, ignoring market volatility in the short-term and resisting the temptation to try to time the markets.
The information contained in this article is general in nature and should not be relied on as advice (personal or otherwise) because your personal needs, objectives and financial situation have not been considered. We recommend that you also seek the advice of a licensed adviser before making an investment decision based on information contained in this article.