A case for staying invested
Why should you hold investments?
When it comes to investing, there is a common misconception that when the market is down, investors should sell their investments. As investors, it’s usually a good idea to remind ourselves that it pays to stay in the game for the long term. Even when the stock markets are falling; even with a cost-of-living crisis; and, even when the economy is actually shrinking. Long-term investing has many benefits and can provide a less volatile approach than short-term investing and provide potential protection against inflation eating away at savings in the bank.
What is a long-term investing strategy?
A long-term investment strategy involves holding onto investments for a minimum of a year but generally aiming to hold your investment for over five years. The aim is to continue to focus on your long-term goals by staying invested, regardless of fluctuating price changes in your investments. Investing in stocks and holding them can grow wealth in the long run, based on the historical performance of the stock market. By consistently investing (even if it’s just a small amount automatically contributed to your investment account each month), you’ll effectively be buying the lows as well as the highs, without trying to guess the market's movements — something even the best analysts in the world struggle to do!
Stock markets reward long-term investors
Historical performance shows that the stock markets have a way of growing our money, even if it might not seem so at a particular point in time. More importantly, a well-diversified portfolio that covers multiple countries and types of assets can provide an inflation-beating strategy over time.
Recently, global stock markets have been rocky. High inflation has made it almost impossible for the world economy to get back on its feet. But it can – and it always has. During the pandemic, we witnessed a near-economic shutdown and a significant drop in the MSCI world index (more on the MSCI world index below) before the performance began to recover to pre-pandemic levels again.
In the last 15 years, the MSCI World Index has risen by 232%, which equates to a return of over 15% on average every single year – but this return would only have been possible for those who stayed invested during that period. There have been years when the index performance was disappointing, as the value of investments actually fell but those who didn't withdraw at those times ultimately benefitted. The key is not to react to daily or even monthly fluctuations in the market and focus on the long-term game.
What is the MSCI world index?
The MSCI World Index is made up of large and mid-cap stocks across 23 developed markets, including countries like the US, Japan, the UK, Canada and France (among others). It’s our preferred index to track since the companies in our ETF portfolios cover companies in various parts of the world.
Short-term investing can be a losing game
Timing the market is tough, but it’s widely accepted that the best time to invest is during periods that may feel uncertain. Many investors have been caught on the wrong side of big market movements, either by trying to be too clever or because they let their emotions get the better of them.
Building a long-term investment strategy with CIRCA5000
Though no one can guarantee high future returns, in the past the market has rewarded consistency, so the old adage holds true: Investing is about time in the market, not timing the market. Focus on your financial goals —it's prudent to regularly assess your investments, but it’s also wise to let the dust settle after major events and during periods of economic uncertainty before making any rash decisions.
When investing, your capital is at risk. This article is meant for informational purposes only and should not be considered financial advice or a recommendation to invest.