I often hear myself telling clients that “it is not about market timing but about time in the market”. Easy to say, perhaps, but for those investors who have a long-term investment horizon, there really is no need to panic when stock markets appear to turn volatile.
The underlying wisdom of this advice has been borne out by recent research from leading savings provider Aegon, which found that those investors who did manage to keep a cool head through the financial crisis in 2008 could now be sitting on returns of 89%. Specifically, the study found that £100,000* invested ten years ago in a mixed investment fund of equities, gilts, cash and bonds prior to the global recession would be worth around £189,000 in 2018.
However, this would have required investors to hold their nerve when their first instinct at the time could easily have been to sell. Indeed, over the period in question, they would have had to ride out an initial 22% loss during the first six months until March 2009 in order to enjoy the subsequent sustained recovery, which has delivered annual returns of around 6.5% over a 10-year period when inflation has been running at 2.3%.
Aegon’s Investment Director Nick Dixon, recognises that: “When markets start to wobble, many people’s first thoughts are to sell. But this natural instinct is often the worst course of action because by remaining invested you avoid selling assets at depressed prices and benefit from any subsequent recovery. Most people will be better riding out the storm, particularly if their savings goal is decades away, as is typically the case with people saving for retirement.”
More than a third (37%) of the 650 consumers who took part in the survey said they thought investment risks are elevated now compared to 10 years ago. Over half (53%) feared another financial crash and, more significantly, this anxiety is affecting the amount of risk they are willing to take with existing or new investments.
Addressing these concerns, Nick Dixon commented: “There are a number of headwinds facing the global economy and markets, including rising interest rates and trade disputes that are reflected in investor sentiment. However, for those in a position to take a long-term view, such issues should not be a barrier to investing. Accepting investment risk – including periods of loss – is necessary to achieve long-term investment returns.”
And, we say the same to our clients: if nothing has fundamentally changed in your investment objectives and time horizon then remaining invested in a diversified, well-constructed portfolio remains the best course of action, even in times of market volatility.
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If you would like to discuss your own invetsment portfolio and how Omnium Wealth can help, give one of our advisers a call today on 01483 205890.
Investing invariably involves an element of risk. There is no guarantee that the value of your investments will grow and you could even lose them altogether in the worst-case scenario.
Higher returns usually mean higher levels of risk and investors need to assess their priorities to work out how much risk they are prepared to accept.
*Figure based on an initial investment of £100,000 in the ABI Mixed Investment 40%-85% Shares in September 2008, excluding investment charges. Source: Aegon UK