Time in the market and NOT timing the market

History shows that short-term ups and downs in investment returns tend to even out over longer time frames. The daily fluctuations in the value of a typical shareholding, for example, are greatly diminished over time frames of five to seven years or more.

In general, the higher the level of risk associated with your chosen investment option, the longer you will need to keep that investment in order to reduce the impact of that volatility and increase your chance of benefiting from the investment’s potential to earn higher returns.

Even though asset classes such as property and shares may be more volatile over short time frames, over the long term, these are the asset classes that have provided the highest returns for investors. And, while cash and fixed interest have generally produced lower returns, they have also experienced fewer, and less dramatic ups and downs, meaning that investors in those asset classes ran less risk of losing money if they were investing for shorter time frames.

The Importance of Time in the Market – Australian Shares to September 2007

Source: IRESS, Colonial First State *All Ordinaries Accumulation Index used. Returns are expressed in per annum terms. Past performance is no indication of future performance.