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Understanding Investing

The Benefits of Staying Invested


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.

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.

A combination line graph and bar chart depicts the performance of a 60% stock/40% bond portfolio against the monthly net flows for the Morningstar moderate allocation category, an indicator of investor purchasing activity

Disclosures

A]l investments contain risk and may lose value.  Investing in the bond market is subject to risks, including market, interest rate, issuer, credit, inflation risk, and liquidity risk. The value of most bonds and bond strategies are impacted by changes in interest rates. Bonds and bond strategies with longer durations tend to be more sensitive and volatile than those with shorter durations; bond prices generally fall as interest rates rise, and low interest rate environments increase this risk. Reductions in bond counterparty capacity may contribute to decreased market liquidity and increased price volatility. Bond investments may be worth more or less than the original cost when redeemed.  Equities may decline in value due to both real and perceived general market, economic and industry conditions.

S&P 500 Index is an unmanaged market index generally considered representative of the stock market as a whole.  The index focuses on the large-cap segment of the market.  Bloomberg U.S. Aggregate Index represents securities that are SEC-registered, taxable and dollar denominated.  The index covers the U.S. investment grade fixed rate bond market, with index components for government and corporate securities, mortgage pass-through securities, and asset-backed securities.  These major sectors are subdivided into more specific indices that are calculated and reported on a regular basis.  It is not possible to invest in an unmanaged index.

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