Thomas Cymer: Hi! I am Thomas Cymer, Financial Planner and Founder of Opulen Financial group. And I am talking about investing in a down market. Right now, I will be discussing step two and three. Be disciplined and avoid market timing. First of all, don't let market uncertainty stop you from investing altogether. Yes, there are indeed reasons to actually stay invested right now. Let me share with you two points. One is compounding, which means generating earnings on an investments previous earnings, increases your investment results over time. And secondly, don't miss the best days of the market. When you wait to invest, or get out of the market altogether, you run a chance of missing the best days. So how much can missing a couple of good days in the market really hurt you? Well, this chart shows how the annual average returns of a hypothetical portfolio invested in SNP 500 would change if the investor were not participating in some of the top performing days.
If this investor misses just the 10 best days of the index during his timespan, his rate is cut by almost -7%. If he misses the 20 best days, his rate was cut to almost -11%. And if he missed best 40 trading days, his return drops to a -17% annually. Remember when I said earlier that no one can predict the future. We don't know the best days until they have gone by. Staying invested for the long term can help you reduce portfolio volatility for your long term goals. Next, we will discuss how you can utilize volatility to your advantage and potentially increase future returns.