The importance of staying invested

Stay strong when the market drops

The importance of staying invested by Fairstone’s head of portfolio management, Oliver Stone

As we have seen over the last few years, stock markets occasionally experience periods of severe uncertainty which can dent investor confidence. These periods are unsettling but are often short lived. The best strategy is always to stick to your long-term plans.

During periods of uncertainty, market falls can be steep and sudden, but history has shown us that these falls tend to be relatively short lived, and the recovery is often as abrupt.

Avoiding the temptation to sell

The temptation to sell out to avoid further falls and trying to buy back in later, or delaying new investments until markets have calmed down or recovered are perilous strategies that is likely to have a significant impact on your returns.

We have analysed the UK FTSE All Share index returns over the last twenty-five years to demonstrate the impact on investors of missing the best performing days.

What this graph shows you is that if you had invested £100,000 at the beginning of 1997 you will have experienced three significant market downturns: the Dotcom bubble and 9/11 in 2000/2001, the global financial crisis in 2008 and the Covid-19 pandemic in 2020.

It also shows you that missing the best days of market returns through this period would have resulted in significantly worse outcomes than simply staying invested.

The table below outlines the monetary impact of missing those days:

The effect is significant and the case for remaining invested is clear.

Missing the worst days often means missing the best

We’ve also looked at the daily percentage return for the UK FTSE All Share Index over the same twenty-five year period (each bar is one day’s return), with the highlighted bars being the best and worst 50 days over that period. This reinforces the risks of trying to time the market as the best and worst days often coincide. This means by extension that if you try to avoid one, you’ll often miss the other showing the importance of staying invested

Short-term volatility may feel unsettling so be mindful that time out of the market can have a far more significant impact as detailed above.

Stay focussed on your financial plan and long-term goals.

If you’re looking to make your first investment steps or you’d like a second opinion in your portfolio, a Fairstone adviser could help.