When you begin investing, you should expect a certain level of instability. In fact, it is quite normal for the financial markets to be volatile. So you need to learn to sit back, relax, and enjoy the roller coaster ride. Of course, it’s easy to enjoy the ride when you’re at the top, but what happens when you hit a dip?
This does not constitute advice and advice should be sought in all instances before acting on it.
The knee-jerk reaction may be to ‘sell, sell, sell’, but financial experts will advise you to take emotion out of the equation and stand your ground.
Because more often than not, a pullback in the stock markets is not a reason for you to sell, it’s prime opportunity to amplify your return.
Strategic thinking
The weaving in and out of the market or changing asset classes, known as market timing, is all based on predictive methods like technical indicators or economic data, and it can be a very tricky business.
Even though some investors think they can outsmart the market, it’s extremely difficult to make those kinds of predictions. It is altogether too easy to make snap decisions based on fear of losing it all or by greedily investing too much on what one might think is a sure bet.
It’s also a time-consuming strategy that won’t yield worthwhile results. While it’s easier said than done, the better approach is to leave your stocks alone.
What you could lose
If you don’t need access to your money within the next few years, long-term investing is the way to go. According to research conducted by Thomson Reuters Datastream into the UK Equities Market from September 1997 to September 2017, the reward of long-term investing far outweighs the risk.
Let’s look at an example:
If you invested £10,000 in the stock market in 1997, leaving this money untouched would have allowed the investment to triple, yielding £32,000 by 2017.
This 20 year gap included the 2000 dot.com bubble burst, the 2003 recession, and the 2007/2008 credit crunch.
All moments in time that would have been extremely tempting to cut and run.
However, analysis of stocks during this time show that missing out on even five of the best days in the market would have diminished returns to only £22,000.
Missing out on 10 days would have resulted in a loss of another £5,000, yielding a mere £17,000.
Staying invested over the last two decades produced an additional £15,000 more than removing the money would have done.
Compounding and growth
A huge advantage to long-term investment is compounding – the potential for your investments to produce earnings, which can then be reinvested and earn even more.
The longer your money stays invested, the more opportunity for compounding and growth.
Keep in mind, this is all part of the long game and there will be some periods where there will be no growth, but the end result after years of compounded investments will be worth more than contributions alone.
While it might be tough to sit back and let your investments rise and fall, remember it is always darkest before the dawn.
Meaning, pullbacks are hard to predict – but it’s clear that strong returns often follow the worst returns.
For doctors and dentists, the sheer number of investment products available can be overwhelming. If you need help navigating the stock market, a financial consultant will be your best resource.
They will help you get the best return possible with a strategy tailored to the level of risk you are comfortable with.
Along with providing investment advice, the financial advisors at Dental and Medical Financial Services can review your entire financial situation to ensure your chosen strategy fits within your overall fiscal master plan.
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