So you have an investment goal to aim for, an appropriately balanced and diversified portfolio to get you there and an eye on the bottom line so your money works harder for you.

All that’s left now is to remember to keep your discipline.

This is important because investing isn’t like saving cash. The value of your investments can go down as well as up, which means you could get back less than you invested.

But that’s the risk that needs to be taken if you want to grow your capital.  

Long-term perspective

It’s why we advocate a strategic approach to investing and why we encourage investors to take a long-term perspective, particularly when markets are weak.

In the period shown in the chart below, UK investors have seen three global “bear markets” in shares – stock market declines of 20% or more lasting more than two months – or four, if you include the short, sharp pandemic-panic of early 2020.

But compared with their opposite – rising markets of 20% or more, or “bull markets” – they have been uncommon and temporary, as the chart below shows. Bear markets have also been shorter on average and had far less of an impact on a portfolio’s long-term performance.

Bear markets are challenging but bull markets have been longer and stronger

Past performance is no guarantee of future returns.
Source: Vanguard calculations, based on data from Bloomberg using the MSCI All-Country World Index from 31 December 1987 to 30 June 2022. Percentage monthly data on a total-return basis, with dividends reinvested, GBP terms.

Panic-selling when prices drop can hurt your wealth. Aside from turning a paper loss into a real loss, you could miss out on the market’s initial recovery, chastened and paralysed by the experience.

In another article, I show just how close to the stock market’s worst trading days, the best trading days often tend to be. But do you know much of a difference it can make to your long-term wealth if you miss out on just a few of these days?

Consider the chart below. It shows how £100,000 might have grown over recent decades if invested in a well-known global stock market index. It’s not a perfect representation; the chart doesn’t account for costs since you can’t invest directly in an index but do so through an index-tracking fund (which is all the more reason to make sure it is a low-cost fund).

But you get the gist: miss just 10 days of trading and it can have a devastating impact on the final size of your investment portfolio.

The impact of missing the best 10 trading days of the FTSE All-World index

Source: Factset, Vanguard calculations, based on the FTSE All-World in total-return (gross) terms as of 31 July, 2022

Trying to time the market is futile. Even professional fund managers struggle to do this well, let alone consistently well.

Time in the market is the most important thing, not timing the market.

So beware your emotions and tune out the short-term-noise. A low-cost and well-balanced portfolio can only fulfil its potential if you have the self-discipline to stick with it. It’s why the most successful investors are usually those who stay the course.