Great post by Austin Smith!

 

Disciplined strategy investing over the long term, rather than trying to time the market fluctuations is a proven strategy for long term portfolio success. Attempting to ‘buy low and sell high’ is incredibly challenging and almost never successfully executed. Trading in and out of different market positions plays on our feelings as we get emotionally attached to certain positions, which has proven to be a recipe for failure.

When the market is performing favorably and on the rise, your emotions want to buy in because of the ‘fear of missing out’ on continued gains. Conversely, when markets are falling, your emotions want you to sell out of your positions to ‘stop the bleeding.’ Emotional decisions relating to timing the market may severely diminish portfolio value. This strategy creates a stressed environment which further exacerbates the emotional roller coaster of trading in and out of the market. You may find yourself up at night always worried about what the market may do tomorrow. History proves that determining long term strategy and remaining disciplined with investments during market fluctuations represents the best recipe regarding portfolio gains.

The graph illustrates that if you invested $10,000 dollars in an S&P 500 total return fund over that 20 year time period, you would have achieved an annualized return of 9.22%. It also shows us that if you missed 10 best days during those 20 years you would have lost almost half of that return.

This illustration clearly demonstrates how costly emotional investing and trying to time the market can be, not to mention all the involved transaction costs. Often the largest up swings in the market come during volatile periods. These are the same volatile periods that play on our emotions and may cause you to sell out if you were trying to time the market. Staying invested during these large market upswing days is incredibly important because the large gains made on these days continues to compound over the rest of your investing period.

In summary, it’s a marathon not a sprint. Remaining invested over the long haul works. Trying to time the market can lead to poor emotional decisions that cost you big. Strategic asset allocation and solid portfolio diversification will help you capture market gains efficiently and effectively so you can achieve your personal financial goals. The key will always center around staying invested.

by Austin Smith