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HOT TOPIC | Pedaling to Prosperity: Why Staying Invested Is the Way to Go

As historical data reveals, the best days in the market often happen amid chaos and heightened volatility. Missing out on these days puts your long-term returns at risk.

Research demonstrates that even a small misjudgment in timing the market can significantly impact your returns. To make matters worse, many of the best market days follow the worst. So, if you exit the market during a downturn, you are likely to miss out on the subsequent rebound.

Imagine riding a bicycle through life's financial journey, where you control the pedals. The key to success is simple: keep pedaling, no matter the weather. This analogy mirrors the importance of staying invested, just like you cannot stop pedaling and expect to reach your destination, you cannot hop in and out of investments and hope to build wealth.

When it comes to investing, the temptation to time the market can be strong. You might think it is easy to buy when prices are low and sell when they are high, but evidence shows that market timing is challenging and nearly impossible. Investors often sell prematurely, missing out on potential gains, or hesitate to invest during uncertain times. In contrast, staying invested through market highs and lows has historically generated competitive returns, especially over the long term.

Attempting to time the market requires not only skill but also nerves of steel and a track record of consistent success. If there were foolproof signals for timing the market, everyone would be using them.

The same principle holds true in the South-African market, as demonstrated by the JSE All Share Index's growth from Dec’97 - Mar’23. If you had invested R100 on 1 Dec’97, your fund value would have been R 1297.14 on 30 March 2023. However, if you missed the best 5 days, it would have been R929.50, and if you missed the best 20 days, it would have been R430.36. These numbers underscore the significance of staying invested.

The influence of missing the best days in the market: Market rebounds can happen quickly and furiously and losing out on a few of those outlier days can have a big influence on your overall return.

JSE All Share Index Annual Growth of R100 (1 Dec 1997 - 30 March 2023)

*Source: FundFocus

Pedaling Your Way to Financial Success: A Bike-Themed Guide to Staying Invested Think of investing like riding a bike. You want to keep moving forward, no matter the bumps in the road. Here are some key takeaways from the biking perspective:

  • Consistency is key: Just as a steady pedaling rhythm keeps you balanced on a bike; consistent investing helps you navigate market ups and downs.

  • Crashes will happen, diversification is key: Just as bumps in the road are guaranteed during a bike ride, market downturns are a part of the investment landscape. To prepare, ensure your portfolio is well diversified across different asset classes. Diversification acts as your financial helmet, protecting your portfolio from the impact of sudden market falls.

  • Avoid sudden stops: Abruptly stopping your bike ride can lead to accidents. Similarly, exiting the market in panic can result in financial setbacks.

  • It is not about the bike – price matters: In investing, much like biking, it is not just about having a bike; it is about the quality of the bike and the price you pay for it. Buying at a fair price can make a significant difference in your long-term returns.

  • The best time is yesterday, the second best is now: In both biking and investing, timing matters. The best time to start your investment journey was yesterday, but if you have not started yet, the second-best time is now. Procrastination can hold you back from reaching your financial goals. So, take the leap and invest.

  • Embrace the journey: Enjoy the scenery along your bike ride, just as you should focus on your long-term investment goals rather than short-term market noise.

  • Seek guidance: Just as a bike ride is more enjoyable with a map or GPS, having a financial advisor can help you stay on the right investment path.

In conclusion, when it comes to investing, remember that it is not about timing the market but about staying invested for the long haul. Much like a bike ride, consistency, and a forward-looking approach are your best companions on the journey to financial success. By diversifying your portfolio, being mindful of prices, and acting now, you can pedal your way to financial success.

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