The Importance of Staying Invested

 

In investing, the term “high volatility” describes large swings in value, to both the upside and downside, of securities (like stocks, bonds, mutual funds, etc.). Some investors may be tempted to exit the markets and their investments during times of high volatility because volatility can be stressful. 

The problem is that investors who are on the sidelines may miss the best days. As the following chart shows, the cost of missing the best days can be dramatic. In fact, by missing only the top 50 days out of the 7,056 trading days in this example, a portfolio will actually decline in value because the remaining positive return days cannot make up for the worst days in the market. And if an investor just missed the 40 best days, they would make 7.3% less than someone who had stayed invested the entire time. Think about it: you could be invested on more than 99% of the best trading days and still lose money.

c1staying invested En

Don’t try timing the market

Instead of attempting to time the market by continually jumping in and out, focus on a long-term, well-diversified investment plan. Specifically, invest at regular intervals—and across markets, if possible—so you can avoid having to predict when the value of your investments will rise or fall, and to minimize dramatic fluctuations of the market. In financial terms, this investment approach is better known as dollar-cost averaging.

A great way to ensure you’re taking advantage of dollar-cost averaging is to set up a pre-authorized contribution (PAC) plan. A PAC automatically invests your money at regular periods and allows you to benefit from compounding returns, since you’re upholding your exposure in the market at all times, while continuously adding to your investment.

A financial advisor can help you stay disciplined and focused on a long-term plan, which can include a PAC plan that takes advantage of compounding returns.

Contact your MD Advisor to find out how we can help or learn more about MD's investments offering.

 

 

Previous Article
How Medical Residents Can Develop Good Financial Habits

If you are a medical resident in debt, should you start saving and investing? Here’s why you need to unders...

Next Article
Steering Clear of Emotional Investing
Steering Clear of Emotional Investing

Investors tend to enter and exit the market at ill-advised times. Be aware of cyclical volatility and the p...

×

Subscribe to our Newsletter

Thank you!
Error - something went wrong!