It has been a testing start to the year for investment markets, the Russia-Ukraine conflict is a humanitarian crisis with no short-term resolution in sight. In addition, there are inflationary pressures most present in the cost of gas, electricity, petrol, and food. This has resulted in central banks raising interest rates and the spectre of a recession being discussed by some commentators.
Against this backdrop stock markets have understandably struggled, the general uncertainty has placed downward pressure onto global equities. Year to date major markets have fallen by approximately 10%. This could mean that you are feeling anxious and concerned about your investments. Please accept this note as some reassurance that what is happening is completely normal within any investment cycle.
Buying And Selling Vs Staying Invested:
A $100 investment in the continually invested portfolio in January 1990 would have grown to be worth twice as much as $100 invested then switched between cash and reinvesting.
Steep falls within equities markets (known as corrections) are regular events. For instance, the start of the pandemic in 2020, the US stock market fell 7.6% in one day, its fifth worst trading day since 1988. On the same day UK stocks also fell sharply. The FTSE All-Share Index dropped 7.4%. The chart opposite shows it is time in the market, not timing the market that counts.
While stock markets react quickly and sometimes irrationally to events, history demonstrates that the bounce back, when it comes, is strong. The table below shows the worst 10 market declines in US history and how markets performed afterwards.
It would be a natural instinct in times such as these, with stock markets falling, to decide to keep cash on the side-lines, to wait and see. However inflationary pressures and low interest rates mean that by staying in cash you are guaranteeing that your money loses value as its buying power decreases year on year. Research shows that staying out of the stock market over the last 33 years could have proven costly.
How £1,000 Could Have Grown (and shrunk) Since 1989:
- £1,000 hidden “under the bed” at the start of 1989 would now be worth £415 because of UK inflation – annual growth of -2.60%.
- £1,000 left alone in a UK savings account at the start of 1989 would now be worth £1,756 – annual growth of 1.70%.
- £1,000 invested in the FTSE All-Share index at the start of 1989, with all income reinvested, would now be worth £6,600 – annual growth of 5.90%.
Whilst it is natural to feel anxious at times when the news is negative, the best course of action if you are concerned is to speak with your adviser. Together we have built a financial plan with you, a map, with your adviser as your guide. At testing times please lean into them for the guidance that you need.
If your circumstances remain the same our advice is most likely going to be to remain invested. In fact, if your circumstances allow it this represents an opportunity to look at adding to your investments at what could prove to be lower values.
If you would like to discuss this or any other matter with your adviser, or you would just like to hear a reassuring voice please contact us and we’ll be more than happy to talk.