Tracker ISA

A question about : Tracker ISA

Ok So I am new to posting here (apologies if post is in wrong place). I am also new to investing and am considering investing in a Tracker based stocks and shares ISA for the first time.

My question is on how they work precisely – I understand they “track” the relevant index, buying and selling stock to reflect the stock price of the individual company.

If this is the case, why is it always said that “investing is for the long term”? If the FTSE (or whatever) does particularly well in a short period soon after investing– 6m to a year for example, why not “cash out” at this point or have I fundamentally misunderstood how my capital is invested?

Best answers:

• Ok, I see – so to follow on from that – if you held shares through a tracker for say 15 years but the market crashed the day before you were planning to sell – the only relevant figure is the amount you paid initially and the amount they are worth at the end? (In which case you lose a lot of you initial investment).
  If this is the case a lump sum investment in a tracker seems like a really bad idea (unless you get lucky and buy at the bottom) and are you are best to make regular contributions throughout its lifetime (to smooth over the ups and downs)??
  All new to this so apologies if this is very basic.
• The returns from shares are made of two elements, price return (capital growth) and dividends. Over the short term, its price movements that make the bulk of returns but over the very long term, the compounding effect of re-investing dividends makes a big difference.
  To illustrate, this is a graph showing the standard FTSE 100 Index from January 1994 vs. the FTSE 100 Total Return Index (which includes re-invested dividends). This index has not performed particularly well since 2000, and indeed had you invested at the beginning of 2000 and not re-invested your dividends you would still be down (even before taking account of inflation). With re-invested dividends you would be showing a profit over the same period.
  This is one reason why investments are better considered as long term rather than short term. Short term trading is not easy and even experts are not reliably able to predict market movements over the short term.