A friend asked, what should I do with the funds I hold, some of which are not performing well in the short term?

To evaluate the performance of a fund, it should be considered from a longer time perspective, such as 10 years.

One should not focus solely on short-term gains.

Every type of investment has its down periods.

For some excellent investments with strong long-term profitability, if the short-term returns are not satisfactory, there is no need to worry.

When the market rises again, the returns will pick up as well.For instance, during the years 2019-2020, the value style was continuously rather depressed.

Likewise, the dividend index, which is also a value style, underperformed the broad market in 2019-2020.

The two consecutive years of downturn led to some value-style fund managers being shunned by investors.

For example, there is a well-known fund manager who adheres to a deep value style.

One of the closed-end funds he manages reached its opening period at the beginning of 2021, with 90% of the fund shares being redeemed by investors.

Consequently, after the large-scale redemption by investors, his fund has since 2021 been at the forefront of most funds in terms of returns.

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The dividend index, which performed poorly in 2019-2020, also significantly outperformed the broad market in 2022-2023.What others discard, I take.

No variety is one that only rises and never falls; the fluctuation risk in investment is inevitably present.

However, there are some methods that can reduce the risk of fluctuations.

Below, I will share three methods with everyone～

Method one: Diversification and rebalancing

The first method is diversification and rebalancing.Diversified allocation and rebalancing are twin brothers:

- Diversified allocation can reduce the overall risk of volatility.

- At the same time, combining it with a rebalancing strategy can also create additional returns.

Let's do a backtest, selecting veterans with a value style and growth style who have been in the industry for more than 10 years.

That is to say,

- Allocating solely to growth style veterans, the return rate is about 70%, with a maximum drawdown rate of about 37%.

- Allocating solely to value style veterans, the return rate is about 85%, with a maximum drawdown rate of about 24%.* Assuming that two veteran investors are each allocated 50%, and the portfolio is rebalanced annually. The total return of such a combination is approximately 97%, with the maximum drawdown rate being around 28%.

It can be observed that the returns in the third scenario are higher than in the first two, while the maximum drawdown is intermediate between them. This means that diversification and rebalancing not only reduce the risk of volatility but also yield excess returns, achieving an effect where 1 + 1 > 2.

Method Two: Buy at a Low Price

The second method is to buy when the asset is undervalued.

Buying at a low price is the best protection for investors.Even the best breeds, if bought at a high price, carry a significant risk.

For instance, during the bull markets of 2007 and 2015, purchasing at levels of five to six thousand points not only fails to yield profits but also results in substantial losses in the short term.

Conversely, if one buys at a low price, that is, invests during a bear market, the probability of making money in the future is higher.

For example, at the end of 2018, during the 5-star A-share bear market, investing in stock funds led to decent returns in both 2019 and 2020.

So, how does one specifically buy at a low price?A more effective method is to refer to the "Screw Star Rating."

In the valuation table published daily by Screw, the overall investment value of A-shares is divided into five star ratings. Above the valuation table, the red stars represent the star ratings. Each star signifies a rating level. A 5-star rating corresponds to five stars.

The higher the star rating, the greater the investment value.

That is to say,

- A 5-star rating indicates a phase when the stock market is very cheap and worth investing in.

- A 1-star rating indicates a phase when the stock market is very expensive and in a bubble stage.Generally speaking, stock assets are suitable for investment when they are rated at 4 to 5 stars.

This method, after years of practice by Screw Nail and daily use by millions of investors, is still quite effective.

Method Three: Long-term Holding

The third method is to be patient and hold long-term.

Long-term investment can use time to span market fluctuations, allowing investment returns to gradually approach the average level.Assuming a 4-star, all-market stock fund investment, backtesting would reveal that:

- Holding for only 1-2 years, there are historical records of losses. For instance, during the prolonged bear market like that from 2012 to 2014.

- Holding for a duration of 3 years significantly increases the probability of making a profit.

- Holding for a period of 5 years, there are no historical records of losses. Moreover, the longer the investment period, the closer the returns are to the average return rate of the stock fund itself.

A previous study by a certain fund company also provided data. It was a statistical analysis of all stock funds investing in A-shares between 2003 and 2017.

If you invest a sum of money in stock funds when the index is below 3000 points:

- Holding for half a year, the average return is 17%;• Holding for 1 year, the average return is 35%;

• Holding for 2 years, the average return is 53%;

• Holding for 3 years, the average return is 82%;

• Holding for 4 years, the average return is 106%.

It is evident the importance of long-term holding.

However, long-term holding is often easier said than done.

Previously, a fund company conducted research and found that the average holding period for stock funds is only 3 months. Most investors, when faced with market fluctuations, are prone to selling out easily.Summary

Mastering certain methods can assist us in reducing fluctuations during the investment process.

The current 4.9-star phase is also a suitable stage for investment.