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Time in the market is more important than timing the market

As most of us sit at home under lockdown, alongside the majority of the western world, we all see first-hand the impact that Covid-19 has had on our lives. News reporting of the outbreak is constant. It has become hard to escape its effects, even when we seek distraction from the change in our habitual lives.

Global investment markets certainly have not been in a bubble over the past six weeks. They too have felt the force of this Coronavirus. Having stabilised recently due to the support packages being announced by governments and central banks, the FTSE had been down as much as 33% since the 19th February and people have been at pains to point out the lack of precedence for the rate of contraction.

At times such as this, investors are forgiven for thinking that the bottom of the mattress might be the best vehicle for their savings and pension assets. As markets retract, it is difficult to see the bigger picture and repeat the mantra that has proven correct in previous market downturns, namely that time in the market is more important than timing the market.

Markets do come back and often do so very quickly, even more so nowadays where a bulk of trading is done through algorithms and computer-based trading software. The market is efficient and it is harder to move in at the bottom. Once this bottom is missed, the loss in growth is tangible and effectively consigns us to a lower return over time. This is illustrated neatly below, showing the loss of growth should we not be invested over the days where gains are largest (which often come after a period of downturn):

So, despite our tendencies for a rush to the exit, staying the course proves the most effective route out of the current situation for investors and despite what feels counter-intuitive, an investor doing nothing is mostly the right action to take.


The value of investments can fall as well as rise. You may not get back what you invest.

Past performance is not a reliable indicator of future results.

Posted by Phil Hart
28th April, 2020
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