Mathews encourages investors to take a fact-based, analytical approach to investing, which includes counterweighting near-term liquidity needs against the longer-term need to stay the course in the markets. Assuming an investor’s need for liquidity are met, she notes, it’s typically in their best interest to stay invested.
Looking to U.S. equities, she says that an investor who missed the 10 best days in the market over the past 40 years would see half the returns of someone who’d stayed fully invested. Similarly, someone who tried to time the market and missed the 10 best days of the last 20 years would have seen their returns cut in half compared to if they had just held on.
“The chances of you missing the 10 best days is quite high. Seven of the 10 best days in the last two decades occurred within two weeks of the 10 worst days,” Mathews says. “From a behavioural investing standpoint, it can be quite difficult for us to be disciplined in knowing when to go in and when to go out. What’s really important is time in the market, not necessarily timing the market.”
Read more: Why advisors should beware the fallacy of forecasts
Many Canadian investors may be setting themselves up to make that mistake. For this year up to September, $4.8 billion has flowed into cash alternative ETFs; in September alone, investors put $1.6 billion into the vehicles, representing the largest monthly inflow into the category since the first Canadian high-interest savings account ETF was introduced in 2013.
