As financial advisers, one of the most frequently asked questions we field from investors is, “what will the market will do on a day-to-day basis?”

Our response is always that investors need to be invested for the long term. You can’t let market uncertainty spook you to make frequent or impulse buy/sell decisions. The simple fact is that nobody knows what the market will do today or tomorrow. In fact, it’s anybody’s guess as to whether the market will go up or down on any given day, so we recommend that investors don’t try to pick the top or bottom.

Returns over time

Dr Shane Oliver, Chief Economist at AMP Capital, last year developed a graph showing the percentage of positive share market days over varying time periods. The graph shows there is close to a 50 per cent chance that the market will provide a positive or negative return on a daily basis for Australian and US shares. 

What’s important to note is that positive bias increases dramatically over time. For example, when comparing year-on-year, the Australian share market has provided positive results over 80 per cent of the time. This increases to 100 per cent when we start comparing decades.

 Long term all the way

The key takeaway here is that attempting to time the market produces at best, a modest premium that may barely cover the work needed to generate excess profits.

We recommend that investors do not get too caught up in day to day movements of the share market. Sure, global and local events will shape the day’s result, but the chance of picking the market’s reaction is pretty much the same as a toss of the coin.

When you commit to “drowning out the noise” and investing for the long term, the bias for positive returns is much stronger.

The information provided above is general information only and individuals should seek specialised advice from a qualified financial adviser. Please contact Hewison Private Wealth for more information.