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Three charts on the benefits of staying invested

These three charts may help you understand market volatility and what you should know as an investor. Remember that markets have seen downturns before, and history shows that dips are followed by recoveries.

Time reduces the volatility of returns

This chart shows a comparison of the highest and lowest returns for various investment time frames from December 1980 to December 2020. For example, the results for the one-year investment time frame are based on 457 sample one-year periods: December 1980 to December 1981, December 1981 to December 1982, and so on, up to December 2018 to December 2020.

As you can see, if you stay invested over time, volatility can be reduced, even across different investments.

A bar chart that shows s comparison of the highest and lowest returns for various investment time frames from December 1980 to December 2020. For example, the results for the one-year investment time frame are based on 457 sample one-year periods: Dec. ‘80 to Dec. ‘81…Dec. ‘19 to Dec ‘20.

Sources: Refinitiv. Indexes used: Canadian equities, S&P/TSX Composite Index; U.S. equities, S&P 500 Index; global equities, MSCI World Index; Canadian bonds, FTSE Canada Universe Bond Index. Based on monthly total returns (CDN$), except S&P 500 Index. Past performance is no guarantee of future results. The index returns presented are calculated monthly total returns in CDN$ (includes reinvested dividends) from December 1980 to December 2020. The three-, five-, ten- and 20-year periods reflect annualized returns. It is not possible to invest directly in an index. Returns are in CDN$ and include reinvested dividends. As at December 31, 2020.

 

The cycle to success

Market volatility can cause lots of panic. Markets have been, are and always will be cyclical. Historically, markets that have gone down eventually recovered.

This chart is a simple way to look at how many investors feel during an economic downturn. When markets start to recover, those who stayed invested tend to feel relieved, because they may benefit from the market recovery.

A line showing how cyclical emotions are during periods of market upside and downturns. During downturns there may be a sense of panic and during upside a sense of relief and accomplishment, but rather than making impulsive decisions it’s best to stay the course and stay invested.


Don’t miss out on the market’s best days

Since we cannot time the market, it can be tempting to pull out your money from fear of potentially losing it all. What you don’t realize is that you put your portfolio at the potential risk of missing out on the market’s best day.

The chart below shows that a $10,000 investment can become $5,020 by missing out on 60 of a market’s best days.

Annualized returns in the S&P/TSX Composite Index

A bar chart that shows the growth of $10,000 when fully invested versus how the final value decreases as you miss the markets best days.

Source: Refinitiv. S&P/TSX Composite Index total returns from January 1, 1986, to December 31, 2020. Past performance is no guarantee of future results. It is not possible to invest directly in an index.

 

What to do next?

Since you can’t time the market, the best thing to do is to reach out to your financial advisor and talk about what is right for your portfolio.

Visit our volatility toolkit
 

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