The University of John Hopkins recently conducted research into the returns on offer to investors. Between 1900 and 2017, the average annual return on stocks was around 11% and, even after adjusting for inflation, that average annual return only fell to 8%.
It shows that, for longer-term investors, staying the course is the best port of call, and that if you want to reap the rewards of investing, you need to sit through the inevitable losses that will occur from time to time.
For example, over the last 20 years, the US S&P 500 Index produced an average annual return of around 6%. However, if you missed the best 20 days in the market over that timespan, your returns would have shriveled to a measly 0.1%.
There are some good tips to help you stay the distance. The first is to ensure that you have enough cash reserves to cover any big events, such as holidays and tuition fees, as well as some to cover any unexpected scenarios. If you do not have that available, then it may be worth considering raising cash from your portfolio now, rather than later after the markets have fallen.
Older investors should also consider tweaking their portfolios to make sure they are ready to exit the workforce. That way, if the market takes a downturn before you retire, you won’t need to dig into your portfolio at reduced values. Always avoid the temptation to cash out your investments completely.
Remember, it’s the time in the market, not timing the market that matters most.
The irony is that, historically, many of the stock market’s best periods have tended to follow some of the worst days. The trick is to have a plan for how long you intend to stay invested, with a that matches your financial goals and objectives and sticking to it, whatever happens. The problem comes when emotions come into the equation.
This is why clients often find that working with a Wealth Strategist works so well. A Wealth Strategist is able to help take the emotion out of the situation and work with you to find out what really is important for you, enabling you to come up with a financial plan that enables you to invest for the longer term and get the best returns.
If you would like to find out how a Wealth Strategist could improve your financial situation, then please contact us for a FREE initial meeting.