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The importance of being patient

The importance of being patient

Posted on: May 03, 2012
Author: Staff

Why you should weather market swings and focus on your long-term goals.

Swings on the stock market—both upward and downward—receive plenty of publicity. Negative newspaper headlines after large, single-day drops can give the impression that investors are in for a wild ride.

In the short term, that may be true. But what about the long term?

The simple answer is, the longer you hold your investments, the smoother the ride will be to the end result.

Like a coin flip, it's all about probabilities. Toss a coin in the air 10 times, and it could land on heads seven or eight times. But flip that coin 10,000 times, and you'll get a result that's closer to the true 50/50 probability.

The same principle applies to the stock market. On a day-to-day basis, markets are unpredictable. But look at their performance over the long term, and a much clearer picture starts to emerge.

Look at the long term

Stocks are considered to be riskier investments, but statistics show that historically, long-term stock market gains consistently offset short-term market losses.

Take a look at the graph below, courtesy of investment research group Morningstar. Of the 60 one-year periods from 1950 to 2009, 16 resulted in a loss. When increasing the holding period to five years, only one of 56 rolling five-year periods resulted in a loss. By increasing to a 15 year holding period, none of the 46 rolling 15-year periods from 1950–2009 resulted in losses. This shows that with a longer holding period, there is a greater chance that your average annual return will be positive.

Risk of stock market loss over time, 1950-2009

 

Risk of stock market loss over time 

 

All values are represented in CAD. Past performance i no guarantee of future results. This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly in an index. ©2010 Morningstar. All rights reserved.

Of course, it's important to keep in mind that holding stocks for the long term does not ensure a profitable outcome. Investing in stocks always involves risk and no return guarantee. Although it can sometimes be a wild ride, investors who stick to their long-term plan and focus on their end goal almost always come out on top.

If you'd like help creating a long-term investment plan, speak with an ATB Investor Services advisor today.​

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