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Worried about the market? This is why you should stay put

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If you’d held an all-equity portfolio in the ASX from 1970 to 2020, your average yearly return would have been about 10 per cent – despite short-term volatility.

Watching share market movements has probably felt akin to a bad rollercoaster ride for many investors recently, given the ASX andWhen it’s hard to see anything but trouble ahead for equities, moving into defensive assets such as cash might seem a tempting way to protect your nest egg.

Exiting the share market now will lock in losses permanently. Grappling with figuring out when to return is another dilemma. Often, the flight to “safety” money is not reinvested until confidence returns and the market has already recovered, by which time you’ve fallen into the sell low/buy high trap.

It is easy to forget about this long-term trajectory when the share market has one of its periodic downturns. But if you’re invested in equities for the long term and have time on your side, remember the long-term uptrend.For example, if you held an all-equity portfolio in the ASX from 1970 to 2020, your average yearly return over the half century would be about 10 per cent.

So, although past performance is no guarantee of future results, the lesson is that letting markets and time work for you is a terrific way to tap into the long-term growth of the economy with your portfolio.

 

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