If you had invested in a UK Index fund from 1980-2009 you would have achieved a return of some 700% on your investment. However, if you had missed just the best 20 days of stock market performance during that period, that return would have been reduced to just 240%.
Getting market timing right is a skill that few possess. Looking at their results, the majority of fund managers also fail at crystal ball gazing, but that does not seem to stop them from trying. Studies show that most successful fund managers are the ones that avoid market timing decisions.
Apart from an inability to do it well are the potential consequences of even trying it. Short-term investing is definitely not for the faint-hearted.
Indeed, if we cast our minds back to January 2020 and I had told that US GDP was going to fall by more than 9% in the quarter, the hospitality and airline sector would be on its knees and unemployment would sky rocket, you would almost certainly have been telling me to sell everything. Yet the market did very well after the end of March 2020 – with all of our portfolios showing positive returns.
We believe that it is better to be a long-term investor, investing in companies that will compound in value over the years. It is all about finding a great investment idea at the right price. Unfortunately, as even Warren Buffet has found, a good investment idea doesn’t come up every day, or indeed every year.
Time is your greatest friend as an investor and being able to reinvest your profits or dividends will make a major difference in your wealth. Simply pocketing a 3% yield will double your money every 33 years, assuming no dividend or stock price growth. However, if you reinvest back into more shares of the same stock, your investment will double in almost 10 fewer years! As well as lower dealing costs, you are also likely to pay less tax.
It also takes the emotion out of investing, with investors sleeping better at night because they hold higher-quality investments with lower volatility.
Many people like the excitement of an investment that will be the next big thing. However, for every successful investment, we hear about, there are scores that did not make the grade, for a bewildering variety of reasons. Professional management of your funds means less stress, potentially better returns, and greater certainty with the end result.
If you would like to find out more about how professional management of your investments could help you sleep better at night then please get in touch and one of our highly qualified Wealth Strategists would be pleased to speak with you.