Home Business Invest without stress: a simulation to avoid “panic selling”

Invest without stress: a simulation to avoid “panic selling”


In a context of negative interest rates and international tensionsinvestments are certainly the most viable alternative to leaving the money stationary on Bank accountwhere management costs and inflation are the causes of a sure erosion of assets, whether small or large.

To better manage your savings, consistency can be the winning weapon. Gimme5 reminds you that with an ad hoc simulation he also explains how the volatility of the markets is not the enemy of investment.

Consistency rewards investments: simulation

Investing regularly through constant contributions every month (accumulation method) is a technique that has numerous advantages, especially in the downturn phases of the market. Indeed, starting an accumulation mode allows you to take advantage of descent of the markets in the long term: no one can say with certainty what the movement of the markets will be in the short term, therefore, splitting the investment also allows you to limit the risk of investing too much when prices may still fall.

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Beginning to accumulate as markets fall increases the prospect of earnings when prices return to their initial levels. To prove this, Gimme5 shows an investment simulation.

In detail, an investment of 100 euros was made in a market that is worth 1000 at week 0. Due to an external shock, such as that caused by the Pandemic, suddenly the market begins its descent week after week. The investor, who decides to start an accumulation mode, invests 10 euros at the end of each week of market decline. In the fifth week, the market fell 45% from initial levels and the value of the investment with the accumulation mode reached € 94.28.

From the sixth week the market begins its recovery. Thanks to the contributions made during the downturn in the market, the value of the investment with the accumulation mode has a greater recovery force than the value of the investment without. At week 14, when the market returns to initial levels (1000), the investor with the accumulation mode has made a profit from his investment, unlike the investor who has not made any additional investments.

Alessandra Caparello | Wall Street Italy

That said, Gimme5 provides important advice. First of all that the “Panic selling” takes away from earnings.

Emotion is the enemy of investments! When we see a descent of the marketsespecially if rapid and violent, the biggest mistake is to panic. Selling and exiting the market means, in fact, freezing losses, compared to keeping your investment.

Numerous studies have shown that missing the best 10, 20 or 30 days of the market over a period of time significantly reduces the achievable gains. Assuming an investment of $ 10,000 in the US stock market 15 years ago, if you had remained invested all the time you would have earned double the loss of even just the 10 best days of the market.

Sales due to panic, therefore, not only cause a certain loss, but they distance us from the best opportunities for returns and, therefore, for possible gains.

Finally, the experts suggest, it is good to maintain a long-term perspective.

If a natural characteristic of the markets is to be volatile and therefore swing up and down, the probability that the stock market is positive every day is about 50%, like tossing a coin. But in the long run, stock markets have shown an increasing trend that reflects the development of the world economy. Taking on a long-term time horizon not only allows you to achieve higher potential returns, but also to better tolerate the ups and downs of the market. As time horizons lengthen, the odds of losing money on the stock market drop significantly. Over a 10-year time horizon, the probability of loss is 4% and over 15 years the probability drops to practically zero.

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