Since 1970, the index MSCI World – Global reference for the developed income— has risen more than 12,200%. Yes, you have read well. More than 12,000%. And that despite all recessions, wars, bubbles, pandemics and economic prophecies self -fulfilled or not. What is the secret? There is none, but a truth: Always be invested.
The market is a drama … until you stop looking at it. Financial history is plagued by moments of panic, but:
• The crash del 87 And … nothing.
• The Puntocom crisis And … nothing.
• The Great financial crisis of 2008 And … well, it hurt, but nothing.
• The Covid With -30% in weeks and … we end the year with +18% in the S&P 500.
Source: Carlos Arenas Laorga
Each fall had its end of cycle narrative. But time puts everything in place. If you had left the market on any of those occasions, you would probably have lost more to stay out than for having endured the chaparrón.
Try to guess when to get out of the market and when to re -enter (what they call market timing) is more than difficult. Difficult, risky and, usually, painful.
The best days on the market usually come just after the worst. In 2008, one of the worst years we remember, there were increases of more than 10% in isolated days. The same happened in March 2020.
If you miss the 10 best days on the market in a period of 20 years, your profitability is reduced by half in the S&P. If you miss the 30, you can finish negative.
An investment that rises 10% per year is doubled in seven years. To the fourteen, it has multiplied by four. At 21, for eight. This is how compound interest works. But for this magical effect to happen, something very difficult is needed: being inside. And being inside is not just not selling when there is fear, but having a plan, a diversified portfolio and continuing to invest.
Periodic savings – the famous dollar cost averaging– It is one of the best ways to achieve it. Don’t worry for the perfect moment. Invest every month and let the market do its job. And when the falls come, they will come, take the opportunity to put a little more.
Fear is logical, but you should not issue your financial decisions. Have a long -term horizon, a trusted advisor and a clear strategy It is what we always advise.
Because more crises will come. There will be more wars, more pandemics, more alarmist headlines. But if the story serves as a guide – and it usually does it -, Being invested is still the most profitable decision.