Does it pay to stay invested when markets fall?

The global stock market has constant ups and downs, but typically returns to its previous high with time, even after bear markets.

In stock market downturns, many investors are relieved to be on the sidelines. But then this worry often sets in – If I’m not invested how do I reach my financial goals? One way to answer that question is to look at what could have happened if you ignored the dramatic headlines and had simply stayed invested. As the graph shows below, the global stock market has constant ups and downs, but typically returns to its previous high with time, even after bear markets.

GLOBAL STOCK MARKET

January 1985 – December 2019

Global stock market returns represented by MSCI World Index. Source: Morningstar.

This example is for illustrative purposes only and is not intended to be representative of the performance of any actual or future investment available to investors. It is not possible to invest directly in an index. Returns are calculated in Canadian dollars and assume reinvestment of all income and no transaction costs or taxes for the period January 1, 1985 to December 31, 2019. Actual client returns would be different due to fees and expenses associated with investing which are not applicable to an index. For purposes of this illustration, a bear market is defined as an index falling at least 20% from a previous high.

Time in the market is time well-spent

When markets start to fall, our instincts often tell us to sell now and buy again later. That may seem logical, but how do you pick the right time to exit or re-enter the market? Because rallies can sometimes come in surges measured   in days not weeks, being out of the market for even a few days can mean missing out on gains.

MISSING THE BEST DAYS CAN HURT

Growth of $10,000 invested in the global stock market

Global stock market returns represented by MSCI World Index. Source: Morningstar.

This example is for illustrative purposes only and is not intended to be representative of the performance of any actual or future investment available to investors. It is not possible to invest directly in an index. Returns are calculated in Canadian dollars, compounded daily, and assume reinvestment of all income and no transaction costs or taxes for the period January 1, 1985 to December 31, 2019. Actual client returns would be different due to fees and expenses associated with investing which are not applicable to an index. For purposes of this illustration, “best days” are defined as days with the highest growth in percentage terms.

When the markets fall, it pays to stay focused on your long-term investment goals.

This content is provided for information and illustrative purposes only and is not intended to provide specific financial, tax, insurance, investment, legal or accounting advice and should not be relied upon in that regard and does not constitute a specific offer to buy and/or sell securities. Information contained in this document has been compiled from sources believed to be reliable, but no representation or warranty, express or implied, is made with respect to its timeliness or accuracy. © Sun Life Global Investments (Canada) Inc., 2020. Sun life Global Investments (Canada) Inc. is a member of the Sun Life group of companies.