InvestSMART's performance for the month of November

This month the InvestSMART diversified portfolios returned between 2.67% and 7.10% and the InvestSMART single asset class portfolios returned between –3.4% and 15.3% to the year ending 30 November 2023.

Why the November recovery is a good lesson in not timing the market 

November was a strong month for equities with iShares Core S&P/ASX 200 ETF (IOZ) increasing 5% and Vanguard MSCI Index International Shares ETF (VGS) returning 4.4%, driving most gains in the InvestSMART diversified portfolios. 

The recovery of equity markets in November is a good reminder that we can never predict when these strong returns will happen. Staying invested over the long term is a key principle for successful wealth creation, and several studies have analysed the impact of missing the best days in the market on overall investment returns.  

The cost of missing the best days 

This historical analysis shows that a significant portion of market gains occur during a handful of the best days. Investors frequently trading, chasing returns or trying to avoid losses are at risk of missing these days and missing out on potential returns. 

For example: A Hartford Funds study found if you missed the S&P 500's 10 best days over the past 30 years, your returns would have been cut in half. Missing the best 20 days would have reduced your returns by 73%. If you missed the best 30 days would have resulted in a staggering 83% reduction. 

Another study from J.P. Morgan Asset Management found that just the top 10 days of the S&P 500 between 1992 and 2021 would have reduced your annualised return from 9.85% to 5.1%. 

Get comfortable with being uncomfortable 

Market timing is notoriously difficult. Investors who try to time the market by frequently entering and exiting, risk missing out on these crucial moments, which can undermine overall returns. Additionally, transaction costs and taxes can further erode investment returns. 

Investors are better off adopting a long-term investment approach and staying invested through market fluctuations. Allow the power of compounding to build returns over time, stay committed to your financial goals and maintain a diversified portfolio. The more years you stay invested, you’ll experience many ups and downs, and become more comfortable with volatility. 

As the late, great Charlie Munger said: “The first rule of compounding is to never interrupt it unnecessarily”.