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Understanding the Stock Market will Lead to Success

Understanding the Stock Market will Lead to Success

April 13, 2020

Investor patience and courage is needed, writes Peter Watson.

Stock market investing success comes from investing long-term, ignoring the temptation of selling during volatile times and not missing significant stock value gain best days. 

This leads to higher investment returns and lower anxiety during times of volatility.

Investment risk is measured by volatility. The value of a bond has relatively small fluctuations and therefore is considered less risky, with less return.

The opposite is true of stocks. Stock values can fluctuate, some fluctuate significantly. They are riskier, the return higher.

Investors include stocks in their portfolio because the expected rate of return is significantly higher than bonds.

On a day-to-day basis no one knows how markets will perform. Over the long-term they are extremely predictable.

During extremely volatile times, it can take courage to maintain your long-term plan. Volatility can be frightening but with a strong investment strategy, this is expected.

During the 20-year period ending at the end of 2018, stock markets suffered through six volatile periods. This included the SARS epidemic, the Middle East respiratory syndrome, and Ebola scares. 

In all cases the stock market recovered strongly. The average stock market increase for the next three years was 22 per cent, and after five years was 53 per cent.

In order to get the benefit of long-term stock returns you must remain invested. If during that 20-year period you missed the 10 best days in the stock market, your return would have decreased by more 50 per cent, according to JP Morgan Asset Management.

Markets work. Investors just need patience and sometimes courage. 

Peter Watson is registered with Aligned Capital Partners Inc. (ACPI) to provide investment advice. Investment products are provided by ACPI. ACPI is a member of the Investment Industry Regulatory Organization of Canada. The opinions expressed are those of the author and not necessarily those of ACPI. Peter Watson provides wealth management services through Watson Investments.