He then put a stock tracking ticker tape in his office and watched as the majority of his net worth rose and fell day after day.
Of course, I’d rather buy a stock when it’s down 30% from its high like we saw in the spring of 2020, so I can reap the rewards of the market’s potential later upswing.
The math behind the power of being fully invested is stunningly clear, and trusting the consistent trends it lays out is important for your long-term success as an investor.
On bad days in the market, the primary stress hormone known as cortisol can be secreted to warn you of danger.
Using the Rule of 72, which is a simple way to determine how long an investment should take to double at a fixed annual rate of return, we can see it would take 8 years for that to happen.
Missing the five best trading days during this period of time drops the rate of return from about 9% to 7.1%.
That’s a 78% decline and the investor is now earning less than inflation, less than long-term money markets.
What compounds the problem and makes investing discipline so important is that very often the best market recovery days bookend the worst.
The market fell a whopping 12% on March 16, 2020, and then on March 24 it increased 9.4%, and then was up another 6.2% on March 26.
The bottom line is that for the majority of investors, you are better off staying the course.
The last thing we want to do is have a life’s work of 30, 40 or 50 years’ worth of investing ruined because of a few days on the sidelines.
This information is being presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors.
He has been the host of “Money Matters” on News 95.5 and AM 750 WSB in Atlanta for more than 10 years now, and he does a live show from 9-11 a.m.