Cos they fear the Familee!
<TABLE cellSpacing=0 cellPadding=0 width="100%" border=0><TBODY><TR>Why fear is a loser
</TR><!-- headline one : end --><TR>Investors typically resort to panic selling during bad times. The Dalbar report explains why staying invested is critical to successful investing </TR><!-- Author --><TR><TD class="padlrt8 georgia11 darkgrey bold" colSpan=2>By Lorna Tan, Finance Correspondent
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-- ILLUSTRATION: MIKE M DIZON
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<!-- START OF : div id="storytext"--><!-- more than 4 paragraphs -->Investors are constantly reminded that staying invested is the key to successful investment. But when the values of their portfolios plummet due to poor-performing equity markets, fear invariably takes over and it becomes increasingly difficult to adhere to that advice. In fact, most investors go into a selling frenzy when markets decline.
Investors who are experiencing that sinking feeling can take heart from the latest findings from US-based research firm Dalbar. The latter has been measuring the effects of investor decisions to buy, sell and switch into and out of funds since 1984. In its 2008 report, it examines real investor returns for funds of various asset classes for the 20 years ended Dec 31 last year.
<TABLE width=200 align=left valign="top"><TBODY><TR><TD class=padr8><!-- Vodcast --><!-- Background Story --><STYLE type=text/css> #related .quote {background-color:#E7F7FF; padding:8px;margin:0px 0px 5px 0px;} #related .quote .headline {font-family: Verdana, Arial, Helvetica, sans-serif; font-size:10px;font-weight:bold; border-bottom:3px double #007BFF; color:#036; text-transform:uppercase; padding-bottom:5px;} #related .quote .text {font-size:11px;color:#036;padding:5px 0px;} </STYLE>Don't time the market
'Judging from the level of pessimism, the level of cash holdings, the upswing could come fast and steep too. You don't want to take the risk that you could be out of the market when it recovers.'
Ms Penny Lim, director at financial advisory firm FPA Financial, advising clients not to sell out in panic and wait to get back in later
Think long-term and ignore the noise
Retail investor and businessman Felix Lee, 48, believes in staying invested for the long haul, even during times of poor market sentiment. He admits to feeling anxious about the present volatile state of equity markets, but is not afraid.
'If you have diversified your investments nicely, there is a sense of anxiety towards your mid-term investments, but the emotion is not one of fear,' said Mr Lee.
</TD></TR></TBODY></TABLE>Staying invested does pay off
One key finding is that unit trust investors who hold their investments typically earn higher returns over time than those who time the market. Dalbar explains that retention is 'critical' to investment success because one cannot benefit from the market if one is not in the market. This is because though it is beneficial to avoid market downturns, very few investors actually do so consistently and successfully.
The key, says the report, is to remain invested to reap the benefits of any market gains.
'During the last 20 years, equity investors would have realised monthly gains 65 per cent of the time. In other words, their chances of making money would have been nearly seven in 10,' says the report.
Guessing it wrong
Using its Guess Right Ratio, Dalbar highlights the problem that investors face. It appears that most investors are able to make the right decision in a rising market but they are unable to guess the direction of the market correctly after a bear market.
These investors typically guess wrongly that the market would not recover - an assumption based on fear. As a result, they stayed on the sidelines as the market recovered. But the 'really smart decision', says Dalbar, is to invest when the market is down.
Its Guess Right Ratio measures how often the average equity investor correctly 'guesses' the direction of the market. Net mutual fund inflows and outflows are used to determine if investors made short-term gains by correctly anticipating the direction of the market. The average investor guesses right when there is either net inflow each month followed by a market rise or net outflow followed by a downturn.
An analysis of the 20-year period ended last Dec 31 shows that equity investors were more often right than wrong. However, the periods of incorrect guessing had an impact on their portfolios. Perhaps not surprisingly, the Guess Right Ratio was highest - at least 67 per cent or eight out of 12 months - during years when markets posted strong returns and, with few exceptions, lowest during market declines. The overall Guess Right Ratio for the 20-year period is 61 per cent.
<TABLE cellSpacing=0 cellPadding=0 width="100%" border=0><TBODY><TR>Why fear is a loser
</TR><!-- headline one : end --><TR>Investors typically resort to panic selling during bad times. The Dalbar report explains why staying invested is critical to successful investing </TR><!-- Author --><TR><TD class="padlrt8 georgia11 darkgrey bold" colSpan=2>By Lorna Tan, Finance Correspondent
</TD></TR><!-- show image if available --><TR vAlign=bottom><TD width=330>
</TD><TD width=10>
-- ILLUSTRATION: MIKE M DIZON
</TD></TR></TBODY></TABLE>
<!-- START OF : div id="storytext"--><!-- more than 4 paragraphs -->Investors are constantly reminded that staying invested is the key to successful investment. But when the values of their portfolios plummet due to poor-performing equity markets, fear invariably takes over and it becomes increasingly difficult to adhere to that advice. In fact, most investors go into a selling frenzy when markets decline.
Investors who are experiencing that sinking feeling can take heart from the latest findings from US-based research firm Dalbar. The latter has been measuring the effects of investor decisions to buy, sell and switch into and out of funds since 1984. In its 2008 report, it examines real investor returns for funds of various asset classes for the 20 years ended Dec 31 last year.
<TABLE width=200 align=left valign="top"><TBODY><TR><TD class=padr8><!-- Vodcast --><!-- Background Story --><STYLE type=text/css> #related .quote {background-color:#E7F7FF; padding:8px;margin:0px 0px 5px 0px;} #related .quote .headline {font-family: Verdana, Arial, Helvetica, sans-serif; font-size:10px;font-weight:bold; border-bottom:3px double #007BFF; color:#036; text-transform:uppercase; padding-bottom:5px;} #related .quote .text {font-size:11px;color:#036;padding:5px 0px;} </STYLE>Don't time the market
'Judging from the level of pessimism, the level of cash holdings, the upswing could come fast and steep too. You don't want to take the risk that you could be out of the market when it recovers.'
Ms Penny Lim, director at financial advisory firm FPA Financial, advising clients not to sell out in panic and wait to get back in later
Think long-term and ignore the noise
Retail investor and businessman Felix Lee, 48, believes in staying invested for the long haul, even during times of poor market sentiment. He admits to feeling anxious about the present volatile state of equity markets, but is not afraid.
'If you have diversified your investments nicely, there is a sense of anxiety towards your mid-term investments, but the emotion is not one of fear,' said Mr Lee.
</TD></TR></TBODY></TABLE>Staying invested does pay off
One key finding is that unit trust investors who hold their investments typically earn higher returns over time than those who time the market. Dalbar explains that retention is 'critical' to investment success because one cannot benefit from the market if one is not in the market. This is because though it is beneficial to avoid market downturns, very few investors actually do so consistently and successfully.
The key, says the report, is to remain invested to reap the benefits of any market gains.
'During the last 20 years, equity investors would have realised monthly gains 65 per cent of the time. In other words, their chances of making money would have been nearly seven in 10,' says the report.
Guessing it wrong
Using its Guess Right Ratio, Dalbar highlights the problem that investors face. It appears that most investors are able to make the right decision in a rising market but they are unable to guess the direction of the market correctly after a bear market.
These investors typically guess wrongly that the market would not recover - an assumption based on fear. As a result, they stayed on the sidelines as the market recovered. But the 'really smart decision', says Dalbar, is to invest when the market is down.
Its Guess Right Ratio measures how often the average equity investor correctly 'guesses' the direction of the market. Net mutual fund inflows and outflows are used to determine if investors made short-term gains by correctly anticipating the direction of the market. The average investor guesses right when there is either net inflow each month followed by a market rise or net outflow followed by a downturn.
An analysis of the 20-year period ended last Dec 31 shows that equity investors were more often right than wrong. However, the periods of incorrect guessing had an impact on their portfolios. Perhaps not surprisingly, the Guess Right Ratio was highest - at least 67 per cent or eight out of 12 months - during years when markets posted strong returns and, with few exceptions, lowest during market declines. The overall Guess Right Ratio for the 20-year period is 61 per cent.
