News & Events
Why Staying Invested Matters
Leigh Moglia CFP®
For investors, the year 2018 proved to be vastly different from the experience of 2017. As we have alluded to in past correspondence, 2017 provided investors with high absolute returns across a wide range of asset classes with little volatility. Unfortunately, 2018 served as a reminder that the good times can’t last forever. The S&P 500 finished the year down -4.38% with several ~10% corrections and a drawdown of ~20% from the market highs of September 20, 2018. The month of December was particularly painful as the market dropped roughly ~15% as of December 24, 2018 before recovering to end the year.
One of the many challenges that individual investors face is staying invested through turbulent markets. When the markets begin to fall, which can be sudden, investors look to stem their losses by selling. Choosing to wait “for the dust to settle” before getting back in. In our view, it is impossible to market time consistently and to be successful, an investor would need to be right twice; first on the sale of stock and again when they get back into the market.
The below chart from Alliance Bernstein looks at the average returns of the S&P 500 over rolling 3 year returns dating back to 1988 and highlights the opportunity costs associated with attempting to market time. An investor who stayed in the market could expect to earn an annualized return of 10.6%. However, an investor who missed just the five best trading days earned a return of 3.7% and experienced negative returns if they missed the nine best days.
To avoid these types of behavioral mistakes it is important that investors have a strategic investment allocation designed to meet their long term goals and objectives. Formulating an investment plan beforehand will keep you stay focused on long term goals and not the daily, weekly, or monthly moves of the market.
It is always our recommendation that investors not overreact to recent short-term market movements and call us should there be any concerns about their investment strategy.
The Information contained in this document is based on data received from third parties which we believe to be reliable and accurate. YorkBridge Wealth Partners, LLC has not independently verified the information and does not otherwise give any warranty as to the truth, accuracy, or completeness of such third party data, and it should not be relied upon as such. Any opinions expressed herein are our current opinions only. YorkBridge Wealth Partners, LLC is an SEC Registered Investment Adviser under the Investment Advisers Act of 1940 (“Advisers Act”). Registration of an investment advisor does not imply any specific level of skill or training. The information contained in this document is to assist with general planning. Please consult with your own tax advisor and attorney for more specific information.