Watching From the Sidelines

Watching from the sidelines

Taking your money out of the market may seem like a safe idea, but it might take a bite out of your long term returns.

In recent times, emerging markets have seen levels of volatility which may have caused some investors to shy away from investing, potentially putting their long-term financial goals at risk.

But, just as investors can be slow to recognise a retreating market, many also fail to see an upward trend in the market until it's too late - when they've missed an opportunity for gain. Missed opportunities like these can take a bite out of an investor's returns.

Please remember, the value of investments can go down as well as up and you may get back less than you originally invested.

Missed Opportunities

Because many investment decisions are based on emotion, people may be prone to make irrational decisions during volatile markets. For example, many investors think they can predict losses, which is almost impossible. In effect, what these investors are trying to do is avoid the worst days, but in the process they may also be missing out on the best days.

The table below is an example of what might have happened if an investor tried to jump in and out of emerging markets to avoid potential losses. By missing just a few of the stock market’s best single-day advances, you could put a real crimp in your potential returns.

Jumping In and Out of the Market May Cost You

Period of InvestmentEmerging Markets Total Return
Fully Invested 96.4%
Miss the best 10 days 8.61%
Miss the best 20 days -26.5%
Miss the best 30 days -46.9%
Miss the best 40 days -59.8%

Cumulative Total Return of Emerging Markets represented by the MSCI Emerging Markets Index. Performance in GBP for the ten years to 31/12/16. Past performance is no guarantee of future performance. An index is unmanaged and one cannot invest directly in an index.

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