Why does trying to “time the market” so often fail?Ben Raven - Director
Had you invested in the FTSE All Share Index at the start of 1997, and held your investment for 20 years, you would have celebrated New Years Eve 2016 with a profit of +268%. An average annual return of approximately 5%, compounded over a quarter of a century. Few, if any, would be disappointed with that return whatever their risk appetite.
I have previously explained the punitive, and hidden, charges involved in running an active mandate (see previous blog “Active Funds; why does nobody mention trading charges?”). Charges make life extremely challenging for an active manager, but there are still those whose funds can absorb them and achieve alpha. The questions are just how good do they have to be, and does that represent a sound investment?
Timing the market consistently over a long time-frame is practically impossible and attempting to do so can detrimentally impact the returns on offer.
In order to maximise one’s long-term investment return there is a compelling argument for populating a portfolio with long-only index-tracking, or Exchange Traded Funds (ETFs).
Assuming the portfolio is well diversified, managed daily and structured in the most cost and tax efficient manner, investors can remain invested 100% of the time and reap the benefits on offer.
Conversely if you had just sat tight your initial stake would have almost quadrupled! Markets can bounce back very quickly after a sell off and remaining fully invested can lead to significantly better performance over the long run.
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Those stocks that outperformed during the corona crisis are the same ‘winners’ that outperformed before the crisis.
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Tavistock Wealth is the investment management arm of Tavistock Investments Plc. The investment team is comprised of 7 highly educated and talented professionals.
One question I get from advisers and clients, more than any other, is why global equity markets have bounced back so far.
In the early stages of the Corona Crisis of 2020, the global economy faced a liquidity crisis.