A case for staying invested
Why should you hold 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 when inflation is at multi-decade highs; and, even when the economy is actually shrinking.
A long-term investment strategy involves holding onto investments for at least a year and investing continuously, regardless of fluctuating price levels of your securities. This can include things like bonds, stocks and ETFs.
Investing in stocks and holding them can grow wealth in the long run. Below are some of the main benefits of long-term investing.
Stock markets reward long-term investors
In the long run, the stock markets have a way of growing our money, even if it might not seem so at a particular point in time.
Recently, global stock markets fell hard. High inflation has made it almost impossible for the world economy to get back on its feet. But it can – and it always has. Two years ago during the pandemic, we witnessed a near economic shutdown.
And whilst stock markets do struggle at such times, it pays to stay invested. 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 only if you stay in the game. There have been years when the index performance was disappointing, as the value of investments actually fell.
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
Now, consider what might have happened if these investments had been withdrawn. Below is a chart from March 2020: investors who panicked and withdrew within a month were most likely to lose money. But this risk was almost non-existent for investors who had stayed put for 20 years.
In short — it pays to stay invested
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.
But the longer you stay invested, the more likely you are to make gains. It may not appear so right now but, over time, it’s more likely that returns will show up than not.
A real-world example
In hindsight, we can now see that some CIRCA5000 investors succumbed to pressure and sold at the very point that they should have been buying.
The 24th of February was the second-best day of the quarter to invest. If someone invested in the MSCI World Index, they would have made 10% in profit by the end of March. Missing the best days in the market has a negative impact on an investor’s long-term return, as evidenced by research carried out by JP Morgan and depicted in the graph below.
Building a long-term investment strategy with CIRCA5000
CIRCA5000 is built for long-term investing, and so we were pleased to see that the vast majority of our customers have continued to invest during this difficult period. The market has rewarded their consistency, so the old adage holds true: investing is about time in the market, not timing the market. It’s prudent to regularly assess your investments, but it’s also wise to let the dust settle after major events before making any rash decisions.
If you’re looking to make sustainable investments, you can do so with one of our investment accounts. Visit our support page for more information.
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.