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Time not timing!

No one can predict with certainty the peaks and troughs of any financial markets and it is generally considered to be a mistake to try to beat the markets - ie having a short-term punt on the stock market with money that you can ill afford to lose.

While past performance is not necessarily a guide to future investment returns, history has shown, and it is also commonly accepted, that equities outperform deposit based savings over the longer-term.

Consequently, time not timing is the key to a successful investment strategy. In short, the longer you are able/prepared to leave your investment, the higher the potential return.

Despite the fact that a long-term investment horizon was agreed at the outset, some people make the mistake of encashing their investments after only a short-term, usually when the markets suffer a downturn. This ’about turn’ in investment strategy results in the realisation of the losses and deprives the investor of the longer-term potential gains when the market recovers.

To illustrate this point, details of three recent market crashes/recoveries are shown in the table and graph below.

Peaks and troughs in the FTSE 100 (total return including dividends)

Year	Event	Drop from peak	Gain 5 years after the trough
1987	Black Monday	-31.5%	+121%
1990	Iraq invades Kuwait	-14%	+121.1%
2001	9/11	-11.8%	+57.2%

 

 

Please note, all data referred to in this Guide has been provided by Lipper Hindsight. All returns indicated were achieved during economic conditions which may not be repeated in future. Therefore, past performance is not necessarily a guide to future returns.

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