The S&P/TSX Composite Index closed at a new all-time high on Wednesday, but does that mean you should sell your stocks?
In a word, no.
The Globe and Mail‘s website provides a calculator showing what can happen if you decide to be a little too cautious and put your money into treasury bills instead.
Investing $10,000 in the S&P/TSX Total Return Index at the beginning of 2002 would nearly double to $19,727 by the end of 2011. That’s a nice compound annual rate of return of 7.03%.
But say during the market run up, you were a little nervous and decided to switch in and out of T-bills a few times. If you missed the best three months during those 10 years, your investment would have grown to just $15,338. That compound annual rate of return dropped to 4.37%, which is almost three percentage points lower.
There would still be a big difference for missing just the best month. Your investment would have grown to $17,707, which would equal a compound annual rate of return of 5.88%.
While it’s unclear where stocks are headed, it’s better to stay invested instead of trying to time the market.