With Volatility Looming, What’s the Best Approach for Investors? — Hoxton Capital Management
With Volatility Looming, What’s the Best Approach for Investors?
Many of you will have heard this message many times already this year because when markets get rocky, it is always good to be reminded of the bigger picture.
The worst thing a long-term investor can do is to submit to fear or panic and exit the markets when they get rough. In order to hit their savings goals, investors should always focus on the things they can control like how much and how consistently they save and how well maintained and diversified their asset allocation is.
The impact of exiting and re-entering the markets when they go down and up can be drastic on a portfolio. This chart shows the worst-case outcome of this behavior for an investor by comparing the return on a $10,000 investment into the S&P 500 over 20 years, to how that return is impacted by missing certain days:
One of the reasons that panic selling is so detrimental is that more often than not, the best days in the market come very soon after the worst. This makes it almost inevitable that they will be missed by someone who just exited and solidified a loss.
Originally published at https://hoxtoncapital.com on November 4, 2020.
