Playing the long game
When headlines turn turbulent and markets react sharply to global events, it’s natural for investors to feel uneasy.
In April, the S&P 500 (the US stock market benchmark) dropped 6% and 4.8% in single days, then surged 9.5%. This volatility, which was triggered by President Donald Trump’s tariffs and the resulting trade tensions, can shake even the steadiest of nerves.
But time and again, history has shown that staying invested and focused on long-term goals is the strategy most likely to lead to success.
Markets move in cycles. Bull markets – periods of sustained growth – are followed by bear markets, where prices fall by 20% or more from recent highs. While these slumps can be challenging, they are not unusual. For patient investors, downturns often represent opportunities rather than setbacks.
A proven strategy
Take the crash of 1987, for example. On October 19, the global stock exchanges plunged unexpectedly, with the Dow Jones Industrial Average dropping more than 22% on a day now known as Black Monday. The dramatic fall shook investors. And yet, those who remained invested saw strong performance in the years that followed. What seemed catastrophic at the time became just another dip in a longer upward journey.
Similarly, markets plummeted during the COVID-19 crash in early 2020. The S&P 500 dropped 30% from its all-time high in just over a month, before rebounding strongly to end the year in positive territory.
More recently, global developments have caused renewed volatility in the markets. Investors might be tempted to step aside until things feel calmer. But this approach can be costly.
Historically, the best days of market recovery often follow the worst, meaning those who try to time their exits and re-entries risk missing crucial gains.
Time in the market
For example, if you were to stay invested in an *FTSE All Share tracker fund over 15 years between 2010 to 2025, you would have had a good average annual return of 7.64%. But if you tried to time the market and missed just the best 10 days, this would have the effect of reducing your investment return from 7.64% to just 4.51% each year. Missing the best 40 days would reduce your average annual return to just -1.22%*. Remaining invested throughout the more volatile markets is usually the best strategy for long-term gains.
Maintaining a long-term perspective when times are tough can be difficult. But regardless of whether investments are in pensions, ISAs, or other accounts, it’s crucial to stay calm.
Selling stocks out of panic can cost you money, while keeping your investments in place gives the market time to recover.
Not timing the market
The challenge with trying to “time the market” is that you have to get two decisions right: when to exit and when to re-enter. Even experienced professionals struggle to do this consistently.
Research ** from Charles Schwab looked at the performance of five different hypothetical investing styles in the stock market, represented by the S&P 500 Index, over a 20 year period. They found that the cost of waiting for the perfect moment to invest typically exceeds the benefit of even perfect timing. They concluded “because timing the market perfectly is nearly impossible, the best strategy for most of us is not to try to market-time at all. Instead, make a plan and invest as soon as possible.”
A balanced approach
While it’s important to hold steady, this doesn’t mean doing nothing. A well-balanced portfolio, spread across different sectors and asset classes, helps limit the impact of unexpected risk and reduce the volatility of portfolio returns.
Now is a good time to ensure your investments are well diversified and reflect your current goals and risk appetite. Reviewing your allocations and making small adjustments can strengthen your portfolio’s resilience, without reacting impulsively to headlines or short-term market movements.
Focus on what matters
At Murdoch Asset Management, we believe that thoughtful planning and disciplined investing are the foundations of financial success. Our team is here to help you navigate periods of market change, make informed decisions, and stay focused on what really matters – your long-term objectives.
Strong investment outcomes don’t come from reacting to every bump in the road. They come from staying committed, staying diversified, and staying invested.
Soucre
** Schwab Center for Financal Research, 13.09.23, Does Market Timing Work?
If you have any questions or wish to explore your options, reach out to us. Our team of experts is ready to assist you. please don’t hesitate to contact us on 0333 241 3350 or email info@richmondhousewm.co.uk
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