“No matter what the market is doing, no matter how it’s performed, there is always a smart-sounding excuse to sell that is very often regrettable in hindsight.” Motley Fool
Over the past century, research continues to demonstrate that staying invested in stocks over the long term has consistently outperformed every other investing strategy. Since, you can’t predict (or time the market) with certainty and you can’t meet long-term goals with short-term investment strategies.
Stocks have outperformed most assets such as bonds, real estate and cash, over the long run. Ideally, anyone with more than 10 years to invest would buy stocks at good prices and exercise patience. Stocks return 7% to 9% a year over the long run — better than any other asset class. But that can be misinterpreted to imply that stocks return 7% to 9% every year. While the long-term average annual return works out to 7% to 9% a year, what happens in between is wild and chaotic.
Investing is just a fancy word for making your money work for you!
Taking an appropriate amount of market risk is necessary because it’s difficult to meet long- term goals with only short-term investments.
It is widely accepted that there are risks of losing your hard earn money money when you invest in stocks, bonds and mutual funds. However, what is less well known and not widely discussed are the greater risks in not investing in assets. Over time, cash loses purchasing power and value.
Yet, in December 2020, households were holding about $16 trillion in cash, according to Motley Fool. Having this much cash on the sidelines is risky. By not investing your money and keeping it in cash will certainly result in your money losing purchasing power due to inflation and may result in you not achieving your long-term financial goals by having money sit on the sidelines.
Ultimately, it’s important to remember your long term financial goals, why you’re investing and to understand the risks of not investing.
According to investing guru Jeff Gundlach, the single biggest reason why most retail investors fail is simple: Their money flows in and out of assets at exactly the wrong time — in just when things are expensive, and out just as they’re cheap. “Volatility scares enough people out of the market to generate superior returns for those who stay in,” Wharton professor Jeremy Siegel explains.
There’s simply too much uncertainty, and no one can accurately predict or time the market. To successfully time the market, it requires a level of precision that nobody’s been able to achieve. Always remember, only a small number of days provide a huge proportion of total growth. Missing them can completely derail your long-term performance.
Bottomline, you should be invested should be in the stock market right now. And, the best way to build wealth is to be invested in stocks, stay invested, and not get scared out because of temporary fears and market volatility.
“The single biggest reason why most investors fail is simple and widespread: Money flows in and out of assets at exactly the wrong time — in just when things are expensive, and out just as they’re cheap.” Morgan Housel
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