Investors are more likely to reach their long-term goals if they remain invested and avoid short-term decisions that may take them off course.
What this chart shows
As this hypothetical example shows,investors may make suboptimal decisions when emotions take over, tending to buy out of excitement when the market is going up and sell out of fear when the market is falling. Markets do ultimately normalize, and when they do, those who stay invested may benefit more than those who don’t.
What it means for investors
To help reason prevail, first make sure you’re comfortable with your allocation to riskier assets and that it makes sense in light of your time horizon. You also need a logical framework for financial decisions and a plan that anticipates periods of market turbulence. A systematic approach for reviewing portfolio results, with pre-established guidelines for selling, may help as well.