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Blog | Don’t time the market, invest for the longer term
Simon Curtain
Partner/Private Client Adviser
29 Apr 2020
Share markets in Australia, and around the world, suffered terribly over March 2020 as measures imposed to slow the spread of Covid-19 took hold. At one point the Australian share market was down 35% from its peak in February, and while the market has recovered somewhat since then, it is still in negative territory.
With all the bad news and volatility, it is increasingly difficult to see the bigger picture.
As advisers, we are often asked what the share market will do today or tomorrow, or next week? While I wish we had a crystal ball to determine such things, the simple fact is that nobody can predict share market movements over shorter time frames as anything can happen.
But what if we increase the investment period?
Some time ago, Dr Shane Oliver, Chief Economist at AMP Capital, produced a graph (below) showing the percentage of time the share market recorded a positive result over varying time periods.
Source: Oliver’s Insights, 12 November 2015
As you can see in the graph above, the Australian share market has recorded a positive result of 50 per cent of the time when we look at day-to-day performance. With US shares slightly more than 50 per cent of the time positive.
This positive bias increases substantially over time, with the Australian share market providing a positive return eighty per cent of the time over a year and one hundred per cent of the time over a decade.
Long term all the way
The key takeaway here is that you shouldn’t get too caught up in the day to day movements of the share market, but instead focus on the longer term. Sure, global and local events will shape the day’s result, but the chance of picking the market’s reaction is pretty much the same as a toss of the coin.
If however, you commit to investing for the longer term and drown out the noise, the bias for positive returns is much stronger.
Hewison Private Wealth is a Melbourne based independent financial planning firm. Our financial advisers are highly qualified wealth managers and specialise in self managed super funds (SMSF), financial planning, retirement planning advice and investment portfolio management. If you would like to speak to a financial adviser on how you can secure your financial future please contact us 03 8548 4800, email [email protected] or visit www.hewison.com.auPlease note: The advice provided above is general information only and individuals should seek specialised advice from a qualified financial advisor. The views in this blog are those of the individual and may not represent the general opinion of the firm. Please contact Hewison Private Wealth for more information.