It’s been a tough 6 months for investors as global markets have endured a number of challenges since the beginning of the year. We understand it can be difficult seeing the value of your investments move up and down at such a pace. However, our financial planners continue to stress the importance of maintaining a long-term view as short-term fluctuations traditionally smooth out over time.
Why are markets down?
Financial markets enjoyed a prolonged bull run over the past 12 years, particularly in the second half of 2020 and throughout 2021, following the initial impact of the covid pandemic, making them vulnerable to a negative correction. Rising inflation, supply chain issues, conflict and increasing interest rates have all contributed to causing global markets to be sent into a downward trend as the economy tries to adapt to a post-covid world.
This combination of challenges has caused the economy to slip into a bear market, with the global market currently being over 13% lower than the beginning of the year. Whilst global markets are clearly not free from challenges, based on historical data we remain confident a stronger recovery will eventually take place.
Market sell offs happen, but so do recoveries
The chart below, produced by one of our strategic investment partners, highlights the journey of the UK-based FTSE All Share Index since 2005. The chart shows there have been several instances where stock markets have experienced sell offs, however every time, this has been followed by a stronger recovery.
Resisting the urge to panic
It can be hard to remain calm in times of market volatility, however this is precisely the most important thing to do. The chart below shows the journey of 3 identical £10,000 investments applying a typical medium risk approach from the beginning of 2020 through to the current day – with the variations resulting from the different actions taken with the capital.
The first approach shows the effect of simply leaving the money invested and doing nothing else. The second highlights the impact of selling after the market sell off and then re-investing after one year. The final strategy shows the result of selling after the sell off and then leaving the capital in cash until the present day.
Evidently, the first strategy has resulted in the greatest value by some way and is the only approach that has shown a return above the initial investment. This illustrates that despite what can sometimes appear to be a ‘scary’ sell off, it is important for investors to retain a long-term view and stick to their original objectives unless there has been any fundamental change in circumstances.
Where next for global markets?
The current market environment and the challenges investors face are very complex; however, the solution is generally simple. The best results have historically come to those who remained calm in times of market distress and stay true to their original objectives, taking a long-term view.
We continue to believe that high quality investments into a mix of asset classes in a geographically diverse strategy remains the best route for the majority of investors. We are also mindful that as we enter into the next market cycle, the coming years may not be quite as easy as the prolonged bull run we witnessed since 2010.
Please get in touch if you would like any further information on investments.