Sharemarket Dives, Investors Play Yahtzee

The Aussie sharemarket – and just about every other key international index – is copping an absolute pasting.

As if September’s 6 per cent shellacking wasn’t bad enough for the ASX 200 (an index of our 200 biggest listed companies), October is breaking it down like Suffa MC and DJ Debris (a pun on our 2 biggest hip-hoppers).

And that’s saying something. I think.

Basically, shit’s going a little pear-shaped out there. The miners, banks and every business in between is copping a swift beating right now.

The question is, should you be worried? The answer, probably not.

This sort of sharemarket gyration happens all the time, and unless triggered by a fundamental problem like banks or currencies collapsing, then chances are you’ll be better off seeing out the rocky road.

The reasoning is summed up neatly in the over-quoted expression that it’s “time in the market, not timing the market” that will earn you healthy long term returns.

 

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To put this into an easily digested analogy, selling out now because you think shares will dive lower would be like rolling a dice and picking the number it will land on.

Then, to time your entry back into the market, you’d need to roll another dice and get that one right too.

If you’ve ever played Yahtzee, you’ll appreciate how difficult this is to do.

Not sold? How about some numbers?

Check out this refreshingly re-published example of long term investment returns, which also happens to be one of the most boring, old-man-ish illustrations for young gamblers.

Despite all the ups, downs, booms and busts over the past 30 years, $10,000 left to wander along in the ASX200 would be worth $283,830 today. A delicious little dividend, you’ll agree.

And over the long term, the whippings we get (like today’s) are just little blips on the long term trend toward lasting wealth.

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Plus, often the biggest sharemarket surges follow sharp sell-offs like the one we’re seeing now, and you don’t want to miss them.

The same number crunchers at Fidelity that put that 30 year chart together also looked at 24 years of data to nail another sterling example of staying in the market.

They found an investor who missed only the five best days on S&P 500 over that period would end up with a portfolio worth about 35% less than the one that had been fully invested the whole time.

So, sell out at your peril, punters.

That said, if you can’t sleep at night knowing another beating might be on the cards tomorrow, shut up shop today. Investing should never dent your downtime.

Image: liz west, via Flickr