CIBC
July 24, 2023
The benefits of staying invested through noise and uncertainty
Sitting on the sidelines? Put your money to work.
Timing the market is hard to get right. Investing strategies that attempt to time and predict the market generally result in excess amounts of capital sitting on the sidelines, eroding your potential earnings as you wait to invest/reinvest. Instead, it’s best to focus on a long term investment strategy and put your money to work. Investing money that you currently have on the sidelines into a thoughtfully constructed, well-diversified investment portfolio rewards you with greater long term growth potential and will get you closer to achieving your financial goals. Investors usually keep money on the sidelines for two main reasons:
1. Fear of investing or reinvesting at the “wrong time.”
2. Worry that short-term market events that cause volatility will lead to irrecoverable portfolio losses.
Does the historical data validate or counter these concerns? Let’s dive in!
INVESTOR A: THE TERRIBLE MARKET TIMER
Investors that attempt to time the market look to buy low, sell high and avoid retraction. Waiting for a correction before you enter the market could cause you to miss out on sudden advances. However, investing your “sidelined” money allows you to take advantage of growth opportunities.
What would happen if a terrible market timer consistently invested $10,000 in Canadian stocks1 immediately before every market decline of at least 10% from 1980-2023? In this scenario, each $10,000 investment is made after the market has recovered past its previous high and right before the next significant market drop.
Investment Statement: "The market is too high to invest right now. I’m waiting for a correction.”
1Source: S&P/TSX Composite TR Index. Investment would have been made in all S&P/TSX Composite stocks. Data is gross of fees. The above chart was created by CIBC Asset Management Inc. using S&P/TSX Composite data from Morningstar Direct. © 2023 Morningstar Research Inc. All Rights Reserved.
The bottom line: even a terrible market timer achieved positive returns after investing for the long run. Waiting for a correction to enter the market can cause you to miss out on key growth opportunities.
INVESTOR B: THE EMOTIONAL INVESTOR
Memories of past financial headlines may create uncertainty about investing in today’s market. However, history has shown that the market will likely prevail in the long term. When you invest your “sidelined” money, and keep it invested through periods of market volatility, you will benefit from the eventual market recoveries that boost your long term growth. In 1980, would you have invested the same $140,000 in Canadian stocks2 if you knew what the future held?
Investment Sentiment: “There is too much uncertainty in the world to invest now"
2 Source: S&P/TSX Composite TR Index. Investment would have been made in all S&P/TSX Composite stocks. Data is gross of fees. The above chart was created by CIBC Asset Management Inc. using S&P/TSX Composite data from Morningstar Direct. © 2023 Morningstar Research Inc. All Rights Reserved.
The bottom line: see positive returns over the long run when you stay invested, especially through market volatility, and ignore the “noise.”
Put your “sidelined” money to work to enhance your long term investment position.
Your CIBC advisor can help you get invested and get you closer to achieving your ambitions.
All information in this document is as of May 31, 2023 unless otherwise indicated and is subject to change.
©2023 Morningstar Research Inc. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete, or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results. This document is provided for general informational purposes only and does not constitute financial, investment, tax, legal or accounting advice nor does it constitute an offer or solicitation to buy or sell any securities referred to. Individual circumstances and current events are critical to sound investment planning; anyone wishing to act on this document should consult with their advisor. All opinions and estimates expressed in this document are as of the date of publication unless otherwise indicated, and are subject to change.
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This information, including any opinion, is based on various sources believed to be reliable, but its accuracy cannot be guaranteed and is subject to change. CIBC and CIBC World Markets Inc., their affiliates, directors, officers and employees may buy, sell, or hold a position in securities of a company mentioned herein, its affiliates or subsidiaries, and may also perform financial advisory services, investment banking or other services for, or have lending or other credit relationships with the same. CIBC World Markets Inc. and its representatives will receive sales commissions and/or a spread between bid and ask prices if you purchase, sell or hold the securities referred to above. © CIBC World Markets Inc. 2023. Shane Dubin is an Investment Advisor with CIBC Wood Gundy in Toronto. The views of Shane Dubin do not necessarily reflect those of CIBC World Markets Inc.
