We all know that the stock market can be unpredictable and volatile, but did you know that just a few missed opportunities could significantly impact your returns?
Let’s take a look at the Johannesburg Stock Exchange (JSE) over the past decade. Despite some ups and downs, the JSE All Share Index has been on a steady upward trend, with an average annual return of around 8%. That’s not too shabby, right?
But here’s the kicker: if you missed out on just a few of the best days in the market over the past ten years, you would have seen a significant impact on your returns. For example, imagine you invested R100 000 in the JSE All Share Index back in January 2011 and held onto it for the entire decade. By December 2020, your investment would have grown to around R276 000. Not too shabby, indeed!
But if you had missed out on just the 10 best days in the market during that same time period, your investment would have grown to just R158 000. That’s a difference of over R118 000 or 42% less than if you had stayed invested. Yikes!
This is why it’s so important to stay invested for the long haul, even when the market is volatile. While it can be tempting to panic and sell off your investments during a downturn, history has shown that the market tends to bounce back over time. By sticking it out, you give yourself the best chance of achieving your financial goals and benefitting from the power of compounding.
Remember, no one has a crystal ball when it comes to the stock market. If you panic and sell off your investments during a downturn, it’s hard to know exactly when to get back in. And if you do wait for things to stabilize before jumping back in, you may have already missed out on some of those best days in the market. That’s why it’s often better to stay the course and stick with your long-term investment strategy, rather than trying to time the market.
Now, of course, it’s important to have a well-diversified portfolio that aligns with your individual financial goals and risk tolerance. Working with a lifestyle financial planner can help you create a strategic investment plan and make adjustments over time as needed. But the bottom line is that staying invested and trusting in the long-term upward trend of the market is often the key to successful investing.
So, let’s all take a deep breath, resist the urge to panic, and stay invested for the long haul. Your future self will thank you!
Dirk Groeneveld, Certified Financial Planner
t. 083 261 9287