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When stock prices move down violently over a short period as they have done in recent weeks, it’s natural for investors to feel disorientated. After all, the pain of financial loss is felt more deeply than the satisfaction that comes with investment success.
But experience shows that, to invest effectively, we need to control our urge to take evasive action at the first sign of trouble.
“Investors should never forget that the secret to capital growth is compounding – the snowball effect of reinvesting your returns to generate future returns,” explains Shaniel Ramjee, senior investment manager, multi-asset strategies, at Pictet Asset Management. “To benefit from the compounding effect, it is essential that investors maintain a long-term perspective at all times. Making snap decisions in response to one piece of data carries significant risks.”
Indeed, it is when markets are volatile that investors should remind themselves of the principles of effective investing.
Bull and bear markets of the past 40 years: S&P 500 Index
Source: Bloomberg, Standard & Poor's, JP Morgan; data shown is in price return terms, covering period 31.12.1972-31.12.2019
Staying the course – rather than reacting to short-term shifts in market gauges - can reap rewards over the long run.
Investing regularly helps. Even the most seasoned investment professional finds it difficult, if not impossible, to accurately time the market. That’s why investing regularly in fixed amounts is a potentially better approach to take over the long run. Investors who do this find they buy more shares at lower prices and fewer shares at higher prices.
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This document is used for informational purposes only and does not constitute, on Pictet Asset Management part, an offer to buy or sell solicitation or investment advice. It has been established on the basis of data, projections, forecasts, anticipations and hypothesis which are subjective. Its analysis and conclusions are the expression of an opinion, based on available data at a specific date. The effective evolution of the economic variables and values of the financial markets could be significantly different from the indications communicated in this document.
Information, opinions and estimates contained in this document reflect a judgment at the original date of publication and are subject to change without notice. Pictet Asset Management has not taken any steps to ensure that the securities referred to in this document are suitable for any particular investor and this document is not to be relied upon in substitution for the exercise of independent judgment. Tax treatment depends on the individual circumstances of each investor and may be subject to change in the future. Before making any investment decision, investors are recommended to ascertain if this investment is suitable for them in light of their financial knowledge and experience, investment goals and financial situation, or to obtain specific advice from an industry professional.
The value and income of any of the securities or financial instruments mentioned in this document may fall as well as rise and, as a consequence, investors may receive back less than originally invested. Risk factors are listed in the fund’s prospectus and are not intended to be reproduced in full in this document.
Past performance is not a guarantee or a reliable indicator of future performance. Performance data does not include the commissions and fees charged at the time of subscribing for or redeeming shares. This marketing material is not intended to be a substitute for the fund’s full documentation or for any information which investors should obtain from their financial intermediaries acting in relation to their investment in the fund or funds mentioned in this document.
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