As an investor, you may have already faced or will face moments of doubt when you hesitate between staying invested in your chosen financial instruments or exiting and securing your gains. This is especially true in volatile times; it’s only natural to feel the urge to act. However, while it may seem counterintuitive, staying invested has often proven to be a reliable path to success. Below, we explore the two main reasons why investors choose to exit, and why sticking to the long-term strategy is usually more rewarding.
"}},{"componentType":"sectionTitle","title":"Reason 1"},{"componentType":"paragraph","richBody":{"value":"Many investors sell as an emotional response to market downturns.
"}},{"componentType":"paragraph","richBody":{"value":"Why you shouldn’t: Emotional selling can “lock in” losses.
Selling during market instability in response to fear can turn what would have been a temporary unrealised loss into real financial loss, while calmly staying invested can allow investments to recover and keep growing. It is important to remember that volatility and recessions in the markets are not only normal, but actually inevitable. The good news is that those periods never last forever. History has shown that even during the worst crises, markets generally recover, rewarding patient investors who stick to their long-term strategies. For example, during the global financial crisis that began in 2007, the stock market index MSCI World dropped around 57.46% in its market value between 2007 and 2009. However, despite such a strong downturn, the index recovered in 2009, achieving a positive performance of 30.79% for the year[1]. Similarly, in March 2020, at the beginning of the pandemic, MSCI World fell significantly but had fully recovered and went back to pre-crisis levels by August 2020, just 5 months later. Today, the index continues to grow even more, reaching new heights.
"},"alignedImage":{"position":"bottom","transformBaseUrl":"https://assets.ing.com/transform/2782da33-1499-4f8d-94da-f77a21a0df1b/Stay-invested-new-2","altTextNL":"Grafiek: MSCI wereld AC en recessies","original":"https://assets.ing.com/m/6ce52fa30e976f7e/original/Stay-invested-new-2.png","extension":"png"}},{"componentType":"sectionTitle","title":"Reason 2"},{"componentType":"paragraph","richBody":{"value":"On the opposite side, many investors feel tempted to sell their financial instruments when the markets are high to potentially reinvest later.
"}},{"componentType":"paragraph","richBody":{"value":"Why you shouldn’t: Market timing doesn’t work.
Even though the idea of “buying low and selling high” might seem attractive, in reality it’s impossible to predict when to make those transactions, even if you’re a professional. This is because markets are affected by so many unpredictable factors that can cause rapid and unexpected changes in prices. It is widely regarded that market timing has a low probability of success, while at the same time this strategy requires constant monitoring and analysis, and can be stressful.
"}},{"componentType":"sectionTitle","title":"More reasons to staying invested"},{"componentType":"paragraph","richBody":{"value":"The power of compounding
Compounding works just like a snowball. It starts small but as you roll it, it gathers more snow, growing larger and larger. The same happens with your investments if you’re in it for the long term – your gains have the potential to build on top of each other, generating more and more wealth.
"},"alignedImage":{"position":"right","transformBaseUrl":"https://assets.ing.com/transform/e998836d-6bd8-4a9c-83b0-0b75f6dee0c4/Jouw-leven-Jouw-geld","original":"https://assets.ing.com/m/2926d99f40295ec2/original/Jouw-leven-Jouw-geld.svg","extension":"svg"}},{"componentType":"paragraph","richBody":{"value":"Avoid extra fees
Every transaction incurs fees and every sale incurs capital gains tax, both of which reduce your net returns. Staying invested helps to minimise those unnecessary costs.
"},"alignedImage":{"position":"left","transformBaseUrl":"https://assets.ing.com/transform/efaf524e-cc1c-4851-b8c4-28ba09fbb0f0/Send-money-spot","original":"https://assets.ing.com/m/64fd5a6fe311d5a9/original/Send-money-spot.svg","extension":"svg"}},{"componentType":"sectionTitle","title":"“Time in the market beats timing the market”"},{"componentType":"paragraph","richBody":{"value":"As the investment analyst Kenneth Fisher famously said, “Time in the market beats timing the market”. Ultimately, the key to success in investing is patience and sticking to your well thought-out plan regardless of how the market behaves. By doing this, you let the market work for you.
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[1] Historical Data of the MSCI World Index: Performance, Return
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