When investing, it’s important to keep the big picture in mind.
However, we know it is difficult when it’s your own money, and seeing the big picture is not always easy.
If stocks go up, it is easy to feel elated. If stocks go down, it is just as easy to feel devastated and can test the resolve of even the most experienced investors. It’s only when we start investing in the market that we can learn how emotional investing is. Even professional investors have difficulty managing these emotions.
During a market downturn, when your emotions are running high, it can be tempting to sell your investment, however this carries the risk of missing the best days in market.
The graph below shows how missing just 10 of the best performing ASX 200 Accumulation Index market days has the potential to cut your returns in the long run. If you miss the best 30 days, it removes nearly all your return. It’s almost impossible to predict when the best days will be; being disciplined and investing for the long term is one way to avoid the risk of missing them.
One thing you learn in the long term is that crises are often not as bad as they are initially predicted to be – but also that good times are never as good as they are predicted to be.
If your only response to a falling market is ‘sell sell sell’ (and not remain disciplined), then perhaps you shouldn’t be in the market. Even in a falling market your investment goals should be to control your emotions and stick to your strategy.
A popular phrase is that ‘it’s about time in the market, not timing the market’. That is, the longer you are in the market, the more likely you are to see a healthier return.
The chart also illustrates the importance of financial literary and having a sound plan you can stick to, since lacking a plan can carry a bigger risk than the market itself.
The hands on market experience that Raiz brings, combined with the app’s automated tools and ability to invest small amounts regularly, are so powerful because they can provide a plan to assist in managing market induced emotions.
“Successful investing takes time, discipline and patience.” – Warren Buffett
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