Why Staying Invested Is Less Risky Than Not Investing

Most investors are terrified of losing money in the market. What they should fear most is not being in the market.

If you’ve ever withdrawn your investments during a downturn, saved cash “until the dust settles”, or procrastinated on starting to invest… read on.

There’s a piece of wisdom that all successful investors know that seems to go against logic:

Remaining invested through market ups and downs is virtually ALWAYS better than losing investment opportunities by NOT investing.

We’ll show you exactly why with some charts.

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The Hidden Cost of “Playing It Safe”

Ask anyone what they think about when they hear the word “investment risk” and they’ll likely envision red on their charts and a smaller portfolio balance come morning. Ouch. That hurts. However, there’s another type of risk that doesn’t get enough attention. The pain of missed opportunity.

Simply, it’s called opportunity cost. The returns you miss out on by not being invested.

The All-Important Rule: Don’t Miss the Best Days

There’s one thing the past several decades of market data have taught us time and time again. It’s not fun to think about:

“If you miss the best days in the market, you lose most of the gains.”

Sharpe describes returns by calculating the ‘best’ days over several rolling periods.

Hypothetical Scenario: $100,000 Invested Over 20 Years

Assuming the market returns 10% per year on average (very close to the long-term average for the S&P 500), and “best days” are defined as referenced in numerous academic studies.

Strategy	Ending Portfolio Value	Total Gain/Loss
Stayed fully invested	$672,750	+$572,750
Missed the 10 best days	$308,645	+$208,645
Missed the 20 best days	$193,481	+$93,481
Missed the 30 best days	$127,503	+$27,503
Held cash (2% savings rate)	$148,594	+$48,594

Missing just 10 of the best trading days over 20 years cuts your ending wealth roughly in half.

The cruel irony is that the best days for the market are usually right after the worst ones. Investors who sell after panicking during a crash often miss the rapid rebound – forfeiting their chance at a recovery.

A Tale of Two Investors

Sarah and Michael are both 35 years old and have $50,000 to invest. Nearly everything about them is the same, except for how they approach investing.

Sarah: The Stay-Invested Investor

Sarah invests her $50,000 in a diversified index fund. She then invests consistently for 25 years without ever selling, even during downturns. She contributes $500 a month. She experiences three recessions, a global pandemic, and dozens of market corrections — but she holds steady and never sells.

Michael: The Market Timer

Michael invests his initial $50,000. He also contributes $500 per month, just like Sarah. But Michael gets nervous. During every major downturn, he hides his money in cash and misses an average of 15 of the best trading days of each major cycle. Michael misses out on the market for about 18 months out of the 25-year period.

Hypothetical Outcome at Age 60

Assumes 9.5% average annual return for Sarah; Michael’s effective return drops to approximately 6.8% after missed days and transaction costs.

	Sarah (Stay Invested)	Michael (Market Timer)
Starting capital	$50,000	$50,000
Monthly contributions	$500	$500
Effective annual return	~9.5%	~6.8%
Portfolio at 60	$821,000	$487,000
Difference	—	–$334,000

Michael’s anxiety cost him over $334,000 — not from bad stock picks, not from fees, but purely from trying to avoid short-term pain.

What About Market Crashes? Doesn’t Timing Help Then?

Good point. I guess if you can time getting out before a crash, you’re saving money, right?

The issue is predicting before. In reality, there is no one—no fund manager, no Nobel Prize-winning economist, no rocket scientist algorithm—that has successfully and reliably forecast market tops and bottoms over time.

Hypothetical: The 2020 COVID Crash

Say you have two investors. Both have $200,000 to invest as of February 2020.

Investor A panics when markets plummet 30% and shifts to cash at the bottom in late March 2020. They sit on the sidelines until “things make sense again” and invest in September 2020.

Investor B remains fully invested the entire time.

	Investor A	Investor B
Portfolio (Jan 2020)	$200,000	$200,000
Portfolio (March 2020 low)	~$140,000 → moves to cash	~$140,000 (on paper)
Misses April–August recovery	$140,000 (in cash)	Recovers to ~$215,000
Re-enters September 2020	Buys back in	Still invested
Portfolio (Dec 2021)	~$198,000	~$290,000
Difference	—	+$92,000

Investor A felt like they were being prudent. In reality, they crystallised their losses and missed one of the fastest market recoveries in history.

Time in the Market vs. Timing the Market

This quote is arguably recited more than any other personal finance mantra. There is a reason for that. It simply states a mathematical truth: Compound interest rewards patience, not precision.

The Power of Starting Early

Let’s say we have three investors who all invest $10,000 one time and never invest another penny…

Investor	Starts Investing	Annual Return	Value at 65
Emma	Age 25	8%	$217,245
Liam	Age 35	8%	$100,627
Priya	Age 45	8%	$46,610

Priya waited 20 years. Her delay didn’t cost her $10k… it cost her $170,635. She was playing it “safe” by sitting in cash for 20 years, but that safety had a huge hidden cost.

But What About Volatility? Isn’t That Risk?

Yes – volatility definitely exists in the short-term. But long-term investors know volatility isn’t the same thing as permanent loss. Your portfolio only loses 25% of its value “forever” if you sell after taking a 25% paper loss.

Hypothetical Rolling 10-Year Returns on a Diversified Index

Sourced from simulated rolling periods matching the S&P 500’s historical performance:

10-Year Period	Annualised Return
Best 10-year window	+18.9% per year
Average 10-year window	+9.6% per year
Worst 10-year window	-1.2% per year
% of 10-year periods with positive returns	~95%

Even during the worst periods in history, a patient investor with a portfolio diversified across many assets held for 15+ years has virtually never lagged behind where they started. While there is a risk of short-term losses, there is extremely little risk of permanent loss over a long horizon if you are diversified.

The Psychological Trap: Loss Aversion

Studies in behavioural economics have found that humans experience the negative emotion of losing about twice as strongly as we feel the positive emotion of gaining.

This tendency is known as loss aversion, and it can wreak havoc on logical, long-term investing.

It explains why we perceive a 10% decline as devastating to our portfolio, even though a 10% gain once felt only like a mild thrill. Our brains are hardwired to focus on avoiding pain — great for dodging predators, bad for managing your retirement account.

Recognising this cognitive bias is half the battle.

Practical Strategies to Stay Invested Through Turbulence

We know you should stay invested for the long term. But actually doing it when markets plummet is tough. Try these tips backed by research:

Make it automatic. Set up monthly investments so you never have to make the decision to invest. You’ll be one step ahead of your emotions if you never give them the opportunity to take over.
Stop obsessively checking your investments. The more you check, the more you fret and the stronger the urge to do something becomes. If you’re investing for the long term, check quarterly or even monthly.
Stay diversified. The more diversified your portfolio is across asset classes, countries, sectors, the less negative each drawdown will feel. Which makes it easier for you not to react.
Maintain a cash emergency fund. Often investors sell investments when markets are down because they need cash. By keeping 3–6 months of expenses in a high-interest savings account, your investments can never be considered your emergency fund.
Remember market volatility is your friend. When markets decline, your automatic investment is purchasing more units at a cheaper price. It’s called dollar-cost averaging and it works in your favour.

Summary: The Real Risk Scorecard

Risk Type	Perceived Risk Level	Actual Long-Term Risk
Staying invested through volatility	High	Low (for diversified, long-term investors)
Moving to cash during a crash	Low	High (missed recoveries, lost compounding)
Delaying investment by 10 years	Low	Very High (significant wealth destruction)
Missing the 10 best market days	Unlikely	Halves your ending portfolio value

The market rewards patience.

It seldom rewards forecasting. If you are a long-term investor holding diversified assets, the data clearly favors one strategy: remain invested, continue to save, and don’t let the noise influence you.

Thank yourself in the future!

Keep learning: courses on this topic

Self-paced courses to put this article into practice.

Why Staying Invested Is Less Risky Than Not Investing

The Hidden Cost of “Playing It Safe”

The All-Important Rule: Don’t Miss the Best Days

Hypothetical Scenario: $100,000 Invested Over 20 Years