The benefit of designing a long-term strategy

The battle against market volatility is best combatted with time. Compounding interest is is frequently underestimated when calculating the return on cash and fixed interest investments. Consider the table at the right. With tow payments in early years, a long term growth rate of 7.5% generates a million within 23 years.

Besides time, a sound investment strategy employs sound investment discipline. This means acknowledging mistakes early and adjusting portfolio composition when trends change.

"More money has been lost anticipating a market crash than actually during one," according to Peter Lynch, legendary former manager of the Fidelity Magellen fund. He does not believ in market timing.

According to his calculation, if you bought stocks once a year and were unlucky enough to pick the worst day to invest (i.e. when stocks were at their highest prices) 30 years in row, you ended with an annual return of 10.6%. if you were incredibly lucky and invested on the best day of the year 30 years in a row, you ended with annual return of 11.7%. so, the difference between perfect timing and horrendous timing is 1.1% - not a grand difference.