Perfect Timing
We know that being invested in share markets can be very rewarding. It can also be unsettling when sentiment turns. Share markets almost always grind higher and, after experiencing extraordinary high returns, it’s normal to feel maybe the run can’t last and so, we expect a fall.
What if we knew precisely when to sell… the day before the crash? We’d do that! Then, what if we knew exactly when to buy back in… the day before the rally. We’d do that too! So would you. Problem is… we don’t know, and neither does anyone else. What we do know, is that share markets have a knack of always reaching new heights. So, why worry about the timing?
A lot of us have a little voice in the back of our minds that speaks to fight or flight – to fear and greed. Depending on what the media of the day is saying, this little voice can get more, or less urgent. It will often lose sight of the logic of long term returns from investing. If what we see are the best returns in the long term, does it really matter what is happening in the short term? Being distracted by short term losses will cause us to miss the opportunity. All we’ll see is fear and flight.
Investing does take fortitude, and we need to accept and be ready for the ups and downs. As you can see below, the ups always outweigh the downs and taking an average over time, there are way more “higher” average returns over the long term. In fact, it really is only in the short-term that problems arise. When you’re in one of those troughs, it’s not pleasant and this is where we help.
The data below is 45 years of the US S&P500. History implies we must be close to having a bad year. It’s simply inevitable. So, what to do? Well, the S&P500 is not the only market. There are many other opportunities out there and as we all know, diversification is a key strategy for protecting wealth. Note: the decade 2000 to 2010, a period of ten years where the average cumulative return was negative 1%pa. Yes, a decade of negative returns. But if we simply stayed invested, and did nothing else, then point to point the average annual return from year 2000 to 2024 has been 7.93%pa. Now it’s not the 10-12%pa we’ve enjoyed more recently but it’s not bad and it is around double what you would have got in the bank… and that’s after a decade of -1%pa.
We don’t know what returns will be in 2025, but we are confident that by the time we get to 2035, we’ll be reflecting on another good average. Over the last 45 years; 8 have been negative, 7 were flat and 30 were “pretty darn good”.
How long are you investing for?…
The views and opinions expressed in this article are intended to be of a general nature and do not constitute personalised advice for an individual client.
