How Have Mutual Funds Performed Over the Last Decade?

Based on the stock market crashes in 2001 and 2008, many investors are thinking to sit out the next decade and wait for the next market crash before investing.  Is this a good idea?

First of all, trying to time the market remains to be extremely challenging.  For those who are waiting to sit out, most likely this will occur.  As the stock market continues to climb, you will be patiently sitting on the side line waiting for the perfect moment.

In the mean time, investors will slowly be making gains over the next ten years.  One day, the market will be over valued and another crash will occur.  However, even after the crash occurs, investors will have enough growth that their returns will still be decent.  Meanwhile, you will have undoubtedly spent that money on something else or used it in some other way, having strayed from your original plan to wait for a crash.  I mean ten years is a long time to wait.

Let's suppose you did have patience.  The you will be stressing out about the exact right time to get into the market.  Rather than using time tested principles, you will try to time the market.  Then, you will closely watch after a purchase and be completely proud of yourself.  The market will drop even more because your timing is off.  You decide that your ten years was wasted and you end up selling because your fear of the market dropping has come true.

Meanwhile, the disciplined investor continues to stay in the market, making small gains over a long period of time.

According to www.marketwatch.com, "A new study by Russel Kinnel, director of fund research at fund tracker Morningstar Inc., sheds new light on just how badly most investors do when it comes to moving their money around. Over the past decade, Kinnel found that the average mutual fund returned 7.05%, but that the average investor – based on asset-weighted returns that use the inflows and outflows to see how much of a fund’s performance the shareholder captures – netted 6.10%."

Is it smart to get in and ride it for the long haul or try to time the market?

This post was reposted from http://finlit.biz/retirement-2/how-have-mutual-funds-performed-over-the-last-decade/, originally written on February 12th, 2013.