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Time in the market, not timing the market


Psychologists tell us that as investors we are more concerned about losses than gains by a ratio of about two to one.

In other words, we feel the pain of a loss twice as much as we feel the benefit from a gain.

Equally, more money doesn’t necessarily make us happier. In fact, adding progressively to our wealth has a diminishing marginal utility.

 

 

 

Since losses are so painful and gains are progressively worth less to us, it is clear why so many investors are sitting in cash earning negative real returns and more worried about the risk of the market dropping like it did at the start of the year.

 

 

And turning a blind eye to the incredible returns on hand to investors following a significant drop in prices. 

The key to dealing with the anxiety of markets is to “zoom out” to not focus on the day to day, week to week gyrations as constantly reported in the Financial Media and what we describe as Financial Pornography. 

Investors are much better off when they never look at their statements and tune out the media.

A brief history of the markets shows us that the real risk is from not being invested.

1 year

 

5 Years

 

10 Years

 

Since 1989

 

Even with three very substantial falls in 2000. 2008 and 2020 Global Developed Equities have double investors returns TWICE!

Clearly, over any reasonable timescale, the risk of the Stock market is from not being invested

 

As the chart above clearly shows, there is always a news story grabbing investor’s attention and giving them something new to worry about. However, over an investing lifetime the market takes whatever is thrown at it in its stride.

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