When I was growing up I couldn’t quite seem to understand the idiomatic expression, “can’t see the forest for the trees”. But fortunately with age came (some) wisdom, and I grew to appreciate the usefulness of the saying. It reminds you to take a step back in order to see the big picture, rather than a small section that doesn’t tell the whole story.
Unfortunately, this is something many investors have neglected to remember, as one can see with the roller coaster stock market we have experienced over the last few weeks. While just over a month ago many investors acted as if the market had no ceiling, now those same people see no floor. Current times are viewed as uncertain, and it’s never easy to see one’s account value drop on paper; however, it’s important to pause and take a look at the larger picture. Panic ensues panic, which causes logic to get thrown out the window, and people feel it is better to sell their assets and sit in cash. While this may seem like the best thing to do, time after time it is shown that this is detrimental to your long-term investment success.
Study after study shows that trying to time the stock market will only end up hurting you in the long run. In fact, if you miss even ten of the best days in the market over a given time period, your return is significantly lower than if you had stayed fully invested. That’s not all: on average six of these ten best days occur within two weeks of the ten worst days(1). So unless you’re from the future, I wouldn’t suggest trying to time the market.
There is an overwhelming amount of data showing that those who stay fully invested in the market—through the good times and the bad—will fare better than those who try to time the market. So, why do so many people continue to try and jump in and out of the market like a school kid playing hopscotch? Such an investor gets stuck obsessing over insignificant details, and self-sabotage ensues. After all, it’s easy to follow the crowd and buy into the good times and sell into the bad ones.
This isn’t the last bear market we will have. In fact, over the long term we will most likely suffer many more. Fortunately, history has shown that despite these setbacks, the market will continue to rise and set new highs over time. In order to avoid falling victim to Wall Street’s whims, you must have a plan in place that you can trust. Use the temporary setback we now face as an opportunity to strengthen your future. If you're not sure about your financial plan or maybe you don’t have one, now is the time to get a second opinion. There’s an entire industry that can help you—why not use us to your advantage?
So let’s take a step back, take in the whole forest, and let cooler heads prevail.
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