Don’t be the unfortunate few who missed out, stay the course.
As trite as it may sound, the investing advice ‘Time in the market, not timing the market’ still upholds its value today. However, many investing novices mellow in the sweet dream of catching the bullish trend and cashing out soon enough to avoid the market downturn. In principle, timing the market can potentially amount to outsized returns; nevertheless, it is next to impossible to consistently achieve over the long term. A vivid example can be appreciated when one looks retrospectively to the turn of events from February to March earlier this year when the stock market went from an all-time high to a multi-year low thanks to the pandemic-induced sell-off. Over these 5 weeks, the Financial Times estimated that retail investors liquidated as much as 45 billion USD from US mutual funds and exchange-traded instruments. The twist of the story? Those funds were very slow to return and hence left many investors out of a strong rebound, essentially realizing their losses.
The net outflow of funds so far this year hovers around 20 billion USD, mitigated by the USD 17 billion inflow since late March. Whilst this number might strike many as a large sum left on the sideline, it is a minuscule fraction of the total assets held in mutual funds and ETFs. According to the Investment Company Institute, the size of invested assets in these funds and ETFs stood at 25.5 trillion USD at the end of 2019. This makes the USD 45 billion outflows a mere 0.176 per cent. Arguably, a little less than two-fifths of a per cent of retail investors had missed out on the post- March rally, whilst the vast majority who stayed the course were rewarded with a handsome gain.
Understandably, when the news media and analysts the world over turn a broadside against the equity markets, it is not difficult for retail investors to be spooked and cash out in fear of a recession. However, time and time again, this strategy has proven to provide poor value for an average investor in the long term. Thankfully, only a small minority acted in this way and any damages, financially or otherwise, are limited to those who tried to outwit the market and failed. To avoid any disappointment, please stay invested, set and forget if you can. More often than not, you will be surprised by how much you gain by worrying less about how well your investments perform.
A Thai version will follow soon.
Net monthly fund flows into US equity funds and ETFs in 2020. credit: The Financial Times.
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