Not rushing to sell investments will lead to higher returns

History shows that doing nothing and not rushing to cash out will lead to better returns in the long run.

Cash in a hurry? You may want to think again.

In a note to clients Tuesday morning, Mark Haefele, chief investment officer at UBS Global Wealth Management, said, “Investors are looking to cash as a safe haven amid a volatile market and fears of a recession.” He used data from EPFR Global to show that the week ending October 5 had the most cash coming in of any week since April 2020:

$89 billion went into money market funds.
$3.3 billion was taken out of global stock funds.
$18 billion was taken out of bond funds.
UBS/EPFR Global is the source.

But Haefele is too smart to just tell people to follow that questionable trend.

“We will continue to tell people not to get out of the market, especially since high inflation hurts cash and it’s hard to know when to get back in so you don’t miss out on rebounds,” Haefele said. Aside from the fact that cash doesn’t pay much and doesn’t protect against inflation, the market is also subject to short, violent rallies. For example, the S&P 500 rose 5.6% in just two days last week.

Moving Markets

Haefele reminds everyone how important it is to stay invested and how silly it is to try to time the market. Academic evidence against market timing, which is the idea that you can successfully know when to buy and sell, is overwhelming. This is mostly because you have to be right when you buy and when you sell, which is hard to do.

This is a small example of what Haefele means. This is how much $1,000 in the S&P has grown since 1970.

If you had invested $1,000 in the S&P 500 in 1970, it could have grown to look like this by August 2019:

Total return: $138,908-best day: $124,491-best 5 days: $90,171-best 15 days: $52,246-best 25 days: $32,763
Dimensional Funds is the source.

These numbers are scary. Your return drops from $138,908 to $90,171 if you’re not in the market on the 5 best days since 1970.

The main point is that your returns are much lower if you’re not in the market on the most important up days. No one knows when that will happen, though.

Jack Bogle, who started Vanguard, used to say, “Don’t just do something, stand there!” The best thing to do would be to make a long-term plan and stick to it, even when you feel like “doing something.”


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