The markets are so unpredictable – what do I do?
Investing involves risk. In the short-term stock markets go up and down. However, when you look at the longer-term, like the last 20 years – the FTSE All-World* delivered an average return of 7.9% per year. So, whilst there are no guarantees of future performance, the longer you invest the better your odds.
Here’s a graph that shows the percentage of times during the last 116 years that shares have beaten cash when held for five, 10 and 18 consecutive years.**
That doesn’t mean there won’t be corrections and crashes along the way. Since 1900 there has been a correction (a fall of 10-20%) once per year on average, and a crash (a fall of more than 20%) once every four years on average. We don’t know exactly when these will happen, but time is your best protection against them.
Every day I see articles about the stock market and what’s ahead for investors – do they matter?
It’s hard to predict the impact of global events on the stock market. Like when Trump got elected, many expected a stock market collapse. Do you know what happened instead? The stock market soared. As of 22 January 2019 the S&P 500 was up 21% since his election. *** This is a simple reminder that it’s impossible to know what the future will bring. No one thought Trump’s presidency would coincide with the second-best stock market performance on record for any US president – but this is what is happening.
When the stock market falls, however tempting it is to sell your investments, doing so will only lock in your losses. Be patient and let your investments recover. The key here is to have enough cash for the short-term so you can ride out the downturns.
Finally, if you look back at history, these headline-grabbing moments don’t look so bad, do they? You wouldn’t want to miss out on those long-term gains because you stepped out at the wrong time.
I see conflicting advice all the time – how do I know when it’s the best time to invest?
No one can predict with certainty where the stock markets are heading, not even the experts. You know it’s time in the markets, not timing the markets that delivers the best results. So, put your investing on autopilot and let time work its magic. Regular investing each week or month, no matter what is going on, will help take the stress out. It also means in the long-term you’ll capture the average which historically has been about 7%****. All you have to do is make a plan, stick with it, and keep a lid on your emotions.
* FTSE All-World index covers over 3,100 companies in 47 countries, across developed and emerging markets.
**Source: FTSE All-World Total Return GBP, Morningstar.
***Source: The S&P 500 index increase from 7 November 2016 to 22 January 2019.
****Source: Barclays Equity Gilt Study.