Loyalty is just as important in investing as it is in a relationship

According to analysis conducted by the platform eToro, loyalty and commitment are as important in investing as in a loving relationship.

In a nutshell:

• Analysis by eToro shows that loyalty is the key to successful investing;
• Involvement in S&P 500 index for a year it gives 72 percent. chances of return; 95 percent within 20 years;
• Holding on to specific stocks during difficult times can pay off, with companies like Meta and BAE Systems rebounding from massive declines to post triple-digit gains.

Long-term investment of funds in the S&P500 increases the chance of profits

Based on data from the last 100 years, the probability of a positive return from index companies S & P 500 for one year it is 72 percent. However, this percentage increases to 87%. in the case of 10 years and 95 percent in the case of 20 years. This is confirmed by data from the British All Share index, with the probability of a positive rate of return increasing from 66%. in one year to 83 percent within 20 years.

The historical data is also interesting. In the last century, a person investing for one year would have seen an average return of 9%. in the USA and 6,4 percent in the UK, however, over any 20-year period the average rate of return was 265%. and 245 percent

Ben Laidler, Global Markets Analyst at eToro comments:

“Although every investor goes through difficult times in their investments, the greatest benefits are achieved by those who implement a long-term plan and stay the course. As our S&P and FTSE data show, the market is timing ahead of the market, and returns are clearly improving over longer periods.”

eToro data also shows profits for investing persistence during difficult periods. Companies such as Amazon, BAE Systems, and Berkshire Hathaway rewarded loyal investors by recovering from large declines and posting healthy profits (Table 1).

Meta was overshadowed by many investors after falling 77%. in 2021 and 2022, but rebounded and in just over 12 months delivered a rebound of 351%, recording a total return of 527%. within ten years. Similarly Amazon reached 796 percent total return over 10 years despite a decline of 53%. between November 2021 and December 2022

The analysis also points to the dangers of short-term romance. Long-term underperformers including Barclays, Pfizer and St. James's Place, won the hearts of investors tempted by triple-digit increases, which quickly faded away, sometimes leaving incredibly large losses (Table 2).

Laidler adds:

“It may be tempting to end an investment when things are not going well in a particular case, but if the company's fundamentals remain strong, it will be better to avoid a hasty sale that may later be regretted. Just look at the transformation last year of large technology companies such as Meta and Amazon, which saw declines at the end of 2022.”

Table 1 – Stocks that have made a spectacular recovery after falling significantly over the last five years

*Share prices as of January 30, 2024

Table 2 - Stocks that have seen notable gains over the past five years but have since underperformed

*Share prices as of January 30, 2024

Ben Laidler has prepared tips for a successful relationship with your wallet:

1. Reach out – you've seen others do it, but you've never tried it… Investing can be intimidating, and getting started may seem like the hardest part. However, with the right knowledge, anyone can do it, and the profits increase over time - the earlier you start, the better.
2. Get involved for the long haul – the old saying “it's time of the market, not the time of the market” always rings true. Like any relationship, there will be ups and downs, but history shows that loyalty to investing pays off.
3. But remember that you can change your mind – it's easy to get carried away and fall in love with the specific action that's in the spotlight. However, just like with a relationship, if you think long and hard and come to the conclusion that it just isn't going to work, then and only then can you let it go.
4. Know what you're looking for – both in love and in investing, it is important to know what you want. No matter what type of personality you are, set your investment goals from the beginning so that you can choose a portfolio that will help you achieve them.
5. Do not judge a book by its cover – beauty only shows on the surface, so before you pass judgment on a company, make sure you do your research on its historical achievements, commitments and values. Knowledge is power when it comes to investing, so before you buy a shiny new stock, make sure you do your research.

Ben Laidler

Global Market Strategist at eToro. Capital investment manager with 25 years of experience in the financial industry, incl. at JP Morgan, UBS and Rothschild, including over 10 years as the # 1 investment strategist in the Institutional Investor Survey. Ben was the CEO of the independent research firm Tower Hudson in London and previously Global Equity Strategist, Global Head of Sector Research and Head of Americas Research at HSBC in New York. He is a graduate of LSE and Cambridge University, and a member of the Institute of Investment Management & Research (AIIMR).