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Don't Panic - it's time not timing that matters in a volatile market

If you are a stock market investor, you have my deepest sympathies.  It has been a truly grim week, particularly for those who had made a New Year resolution to start saving.

The statistics about the Great Equities Bloodbath of 2016 are endless – and they all make for a thoroughly depressing read:

• It was the FTSE 100’s worst start to the year since its launch in 1984
• £113 billion has been ‘wiped off’ share prices over the past two weeks
• The blue-chip index has dropped 7% since the start of the year
• That’s enough, please.

It is the sort of fortnight that provides the perfect ammunition for those who like to argue that investing in the stock market is a fool’s game.  A savings account is safer, steadier and does not keep you awake at night.  Isn’t it better to get 0.7% interest a year on your nest egg, than to lose 7% in a fortnight?

But let me run another statistic past you before you hit the panic button and sell all your shares, which is the natural response to such dire market conditions, particularly when nobody really knows what is going to happen next week/next month/next year/ever – even Royal Bank of Scotland, which knows a thing or two about a crisis, sent out a note to its clients urging them to "sell everything except high quality bonds".

Exclusive figures, compiled by investment giant Fidelity International after the market closed on Friday, tell a very simple story.

Let’s say you put £1,000 into FTSE All-Share – a broad measure of the market that includes shares listed on the FTSE 100, the FTSE 250 and the FTSE Small Cap Index – 30 years ago.  It would now be worth £14,734.  Fantastic.

But, if you had tried to ‘time’ the market, you wouldn’t have done nearly so well.  If you had missed the best 10 days, your investment would be worth only £7,812, a loss of nearly £7,000.  Put another way, you would pretty much have halved your gain, proving that it is better to stay in and close your eyes, than to desperately try and avoid the bad days.

The case is even more extreme for those who missed the best 20, 30 or 40 days.  Miss the 40 best days and your investment would now be worth £2,450.

It is also worth pointing out that the best days often follow swiftly on the heels of the worst days as they often go almost hand-in-hand.  As Tom Stevenson, investment director at Fidelity International, said:

“There is a real danger that you increase your under-performance by capturing the worst days in your personal performance while missing out on the best.  Time in the market matters more than timing.”

Nobody can time the market – and nobody should try to do so if they want to see their investments rise in value over the long-term, rather than fall, unless they have the crystal ball that no other investor has.

This entry was posted on January 19, 2016