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Why doing nothing can be the best investment strategy to follow

by , 03 September 2015

The markets have certainly been on a volatile ride over the past week or so. It's not surprising many investors are worried about their portfolios.

Financial headlines don't help, fuelling panic.

So what should you do? Should you sell? Or should you hold on?

Read on to find out…

Have to handle stock market volatility

When the stock market is up and down so ferociously, it’s hard to sit on the side lines and do nothing. Something inside you tells you that you should do something.

But in fact, sitting and waiting can be the smartest investment strategy to follow in situations like this, Sean Keyes in Penny Sleuth explains.

Over the long-term, stock rise more than any other type of asset. The price you pay for these returns is that investing in shares is more risky. And you see this in times like this when the stock markets are all over the place.

There’s a link between risk and returns. The lower the risk, the lower the potential return. The more risk you take on, the higher the potential return.

An investment strategy that will take you through the volatile periods in the stock market is to ride out the dips and trust that the overall upward trend will continue.

But many investors choose a different investment strategy

Many investors don’t invest like this though. When the news gets bad, they panic and they sell. Then when the stock market blasts higher, they buy in again.

This means they’re buying high and selling low. The complete opposite of what you should be doing to make money from the stock market.

Doing this costs you.

Take a study by Geoffrey Friesen and Travis Sapp. Their research showed that by trying to time the market in this way, investors lose more than a third of their portfolios in the process.

You have to resist the temptation to sell in panic and go with the long-term trend.

So there you have it. Why doing nothing can be the best investment strategy to follow.

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Why doing nothing can be the best investment strategy to follow
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