By Matthew J. Bullock – Investment Director, Wellington Management

At times like this, it never hurts to dust off basic, time-tested principles — like the importance of staying invested through thick and thin — that even sophisticated investors may lose sight of when fear takes hold. While we don’t yet know how long the COVID-19 crisis will last, the extent of its economic impact, or when markets will bounce back, here’s what we do know.

  • Investor returns would have suffered greatly from missing the market’s best days. The MSCI World Index returned 7.52% annualized for the 15 years ended December 2019, but investors who missed the 10 best days from that period would have earned less than half of the market’s return. And missing the 40 top-performing days would have resulted in a loss of 2.51% (Figure 1)!
  • Trying to “time” the market is difficult, if not impossible. Of those 40 top-performing days, more than half (22) occurred in 2008 and 2009, around the time of the global financial crisis. So, ironically, I suspect many panicked investors who sold equities during that period, in an ill-advised effort to avoid the market’s worst days, may have missed some of its best days.
  • I believe the best approach is often to simply stay the course. The market will eventually recover from the current crisis, and when it does, you want to be positioned to participate in the upswing. That’s why it is important to keep your emotions in check and adhere to a disciplined, long-term investment strategy, painful though that might be in the short run.

Sources: MSCI, FactSet. Chart data covers the 15-year period from 31 December 2004 through 31 December 2019. This example is hypothetical and for illustrative purposes only. Different potential scenarios (including those involving missing the market’s “worst days”) may yield significantly different results from those shown here.  Hypothetical and past performance is not necessarily indicative of future results and an investment can lose value.