Investors that jump in and out of the market in the hope of riding the highs and avoiding the lows may have suffered greater losses over the long term than those who have retained their investments, research from fund manager Vanguard Investments Australia has revealed.
The Vanguard index chart tracked the returns of the major asset classes from 1 July 1970 to 30 June 2009.
"What the figures clearly show is that staying invested for the long term is what delivers rewards. Stepping out of the market even for only a month or two due to fear of market lows can negatively impact on long-term returns to the tune of hundreds of thousands of dollars," Vanguard head of retail Robin Bowerman said.
"For example, an investment of $10,000 in the Australian sharemarket in 1970 pulled out at the end of January 2009 would have been worth $389,034," Bowerman said.
"The investor would have avoided losing a further $35,439 between 30 January and 6 March, on top of the $338,988 paper loss they had already crystallised, but they would have missed the 55.8 per cent rise in the market observed between 6 March and 30 September 2009.
"If they were still out of the market by 30 September they would be $161,786 poorer than if they had simply stayed invested."
Bowerman said the all-important lessons of having a well-diversified portfolio and staying the course were learned the hard way for many investors in the recent downturn.
"While staying the course won't protect you from market downturns, it does ensure that you are invested during the periods of market growth that invariably follow," Bowerman said.
