WITH the sharemarket performing poorly over the past year, many investors will be tempted to sell shares.
If they are in the red, they may be tempted to cut their losses. Or they may simply be waiting for the market to turn, at which time they will buy back in.
But the problem here is that nobody knows when the market will turn, or how quickly it will recover.
Perpetual’s Brad Holmes said it is folly for people to take their money out of the market now and wait for it to recover.
“If you do that, you will be in grave danger of missing the early, and very substantial, rises associated with a recovery,” Mr Holmes said.
“As an investor, it is important that you recognise that most investment markets don’t offer a smooth, upward-trend return.
“Most markets give you a bumpier ride than that.
“There are often long periods when nothing much is happening.
“But these periods are usually followed by short, sharp bursts that make the wait worthwhile.”
Perpetual has produced some research that highlights this pattern.
The table below shows that over the past two decades, the market has been characterised by periods of weakness followed by periods with very strong positive returns.
For instance, over the four months to August 1998, the market fell by nine per cent.
Over the following seven months to March 1999, the market rose by 61 per cent.