Long-term investors are advised not to try and time the market, writes Peter Watson.
But beware: timing the market can be a costly mistake.
You might decide to sell your investment because of the negative research you have read or done on your own. Or maybe, you suddenly have a bad feeling about the market.
The market is made up of millions of investors around the world who make their own buy-and-sell decisions based on their views of the market. It is the collective trading decision of the masses that determine what the market does.
If you invested $1,000 in the U.S. Russell 3000 Index in 1999, 25 years later in 2023, the value would have increased to $6,449. To make a point, we should consider 25 years is 1,300 weeks.
If you were out of the market for the best one week of that time, the total 25-year gain would shrink by more than $1,000 to $5,382.
During the last 100 years, the U.S. stock market measured by the S&P 500 has posted positive gains on average three out of every four years.
When markets decline, they have a history of rebounding quickly. This means if the market goes down, you have a strong chance of regaining those losses.
A word of caution — we are looking at market behaviour, not individual stocks. Stocks can decline in value and not recover and in some cases can decline to a value of zero.
If your circumstances change, then it might be appropriate to sell an investment even if you are a long-term investor.
Other than that, history shows it is usually better to stay invested.
Peter Watson, of Watson Investments MBA, CFP®, R.F.P., CIM®, FCSI offers a weekly financial planning column, Dollars & Sense. He can be contacted through www.watsoninvestments.com.
