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Control Your Emotions
Jun 15, 2022

 

 

 

CASE STUDY: To sell or stay the course?

 

Case 1: The Nervous Nelly

In the first example (Timing the Market with Nelly.pdf), a client, Nervous Nelly, invests $100,000 in Fidelity Canadian Large Cap Fund at the very end of 2000. 
Every time the market goes through a sharp correction, Nelly sells.  When the market starts to improve, Nelly re-purchases the Fund.  
After 22 years, Nelly’s investment grows to $518,272, for an average annualized return of 8.0%. At first blush, this doesn’t seem too bad…
 

Case 2: The Steady Eddy

In the second example (Staying invested with Eddy.pdf), Steady Eddy invests $100,000 in the same fund, on the same date.  
But in this case, Eddy does not touch the investment. Eddy just lets it do its thing, riding out the waves.
After 22 years, Eddy’s investment grows to a staggering $800,686 for an average annualized return of 10.2%. A difference of almost $300,000 from Nelly!
 

Obviously, we would all rather be like Eddy and have an extra $300K in our pocket. 

 

The moral of the story is that investors like Eddy had to endure the painful ups and downs. It’s always worth remembering that volatility is part of the plan. Trust the plan, and, if possible, avoid looking at accounts during market volatility, as this will only exacerbate fears and cause knee jerk reactions.  Be like Steady Eddy.

 

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