Share markets in Australia, and around the world, have performed strongly in recent months. Over the last year, our local market increased around 11% in value, and overseas markets fared even better.

As advisers, we are often asked what the share market will do today, tomorrow, or next week? While I wish I had a crystal ball to determine such things, the simple fact is that no one can predict share market movements over shorter time frames – instead, you need to invest with a long term focus.

Long term investing is key

Some time ago, Dr Shane Oliver, AMP Chief Economist, produced a graph (below) showing the percentage of time the Australian and US share markets recorded a positive result over varying time periods.

As you can see in the graph above, on any given day there is a 50% chance that the share market will be ‘up’ (or ‘down’). This positive bias increases substantially over time, with the Australian share market providing a positive return 80% of the time over a yearly period and 100% of the time over a decade.

Turn down the noise

The key takeaway here is that you shouldn’t get too caught up in day-to-day movements of the share market, but instead focus on the longer term.

In today’s 24/7 news cycle there is always something to write or complain about and while global and local events will shape the day’s result, the chance of picking the market’s reaction on any given day is pretty much the same as a coin toss.

If, however, you commit to investing for the longer term, and turn down the noise, the bias for positive returns is much stronger.