During periods of significant volatility, it may feel difficult to be invested in the equity markets. However, without risk there would be no returns — and equities continue to be one of the greatest generators of wealth of all asset classes. Maintaining discipline and patience throughout volatile times and staying invested is important.

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Volatility is a reminder that portfolio growth does not occur at a steady rate. Yet, time reduces the volatility of returns. As history has shown, negative market performance smooths out as an investor’s time horizon increases. Over the past 30 years, the likelihood of the S&P/TSX Composite Total Return Index experiencing a negative monthly return is 38 percent. This drops to 13 percent over a three year rolling holding period, and 0 percent over seven-year rolling holding periods and beyond (chart 1).

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Time in the markets also allows investors to participate in the best performing periods in the markets, which, as discussed in our cover story, can often cluster around the worst market declines. Missing these periods can be costly. The chart shows the impact of missing the best performing months of the S&P/TSX Composite Total Return Index over a 30-year period. By staying invested, a notional investment of $1,000 would have grown to $12,693. By missing the five best months, this would fall to $7,503 (chart 2).

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These are just two reasons to continue to keep perspective and stay invested during volatile times.

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This article was originally published in the Summer 2022 newsletter, "Challenging the Trend." Click here to view.

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