By Robert Harris, Forth Capital
Nobody can time the markets consistently. It is time spent IN the market, rather than trying to time the market, that is the key to medium to long-term investment growth. If you want to be invested in equities you must be prepared to understand that a market cycle is usually five to seven years, and if you can’t be invested for that length of time, you should not be invested in equities.
For example, if you had been invested in a UK index fund from 1980-2009, you should have achieved a return of 700% on your investment. However, if you missed the best 20 days of stock market performance during that period, that return would have been reduced to just 240%.
The lesson for all investors here is that as long as you are invested in your correct risk strategy, and for the medium to long term, you should stay invested and “ride the wave”.
If we look at the events of the last 3 months, most stock market performance has been driven by statements from the Chairman of the Federal Reserve, Powell, whose statements have signalled changes in US interest rates from increases of 0.5% to reductions of 0.25%, causing markets to fall and rise depending on the statement.
Another example of when staying invested has proven to be the best route, is the performance of Forth Capital’s Next Generation funds which continue to rebound after the general market shock in the 4th quarter of 2018.
During January the Growth fund rose over 3%, and is up 5% since the year-end, while the Defensive fund rose over 1.5%.
If you had been invested in these funds and tried to time the market, you would have had to have sold before the “hawkish” statement in October, and then bought back before the “dovish” statement on the 4th January in order to maximise your gains.
The chance of an ordinary investor getting one of those decisions correct is low; to get both right would be almost impossible. Most people sell and buy back too late missing both the top and bottom of the market, with the result being that they would invariably be better off leaving the portfolio invested. This also doesn’t consider the costs involved with buying or selling.
The moral of the story is for medium to long term investors to stay invested through market turbulence.
Forth Capital specialises in expat pensions and investments – to speak to one of our advisers click here or call +41 22 311 1441 or click here and we can call you: https://www.forthcapital.com/about-us/contact-us/
Author's bio
Robert Harris has over 25 years experience working for some of the major financial institutions in the City of London, including 12 years at Citibank where he was a Senior Banker. During his time at Citibank, Robert was responsible for global relationships with important financial institutions and instigated a number of landmark deals.
Robert is a founding partner of Forth Capital and has helped the company become the leading expat financial advisory company in Switzerland. He has been quoted in the Financial Times and numerous magazine articles.
For the www.knowitall.ch website, Robert invites various members of his team at Forth Capital to contribute blog articles on different financial topics that he thinks will be of interest to our readers.
