Equity markets rise over-time but they do not do so in a straight line. Volatility – although difficult to stomach at the time – is par for the course. According to Duncan Lamont, head of strategic research at Schroders, the stock market tends to fall by 20% once every four years and by 10% at some point during most years.
THE STOCK MARKET HAS RIDDEN OUT PAST CRISES
“The price we pay for the long-run outperformance of equities compared with apparently safer assets such as bonds and cash is the volatility of the stock market. But the longer-term returns only accrue to investors who are able to hold their nerve during moments of market dislocation, who avoid crystallising losses by selling after sharp falls, and even take advantage of market falls to top up their holdings at attractive prices.”
Tom Selby, director of public policy at AJ Bell, evoked Rudyard Kipling’s poem, ‘If’, to make a similar point. “[Stock market] instability can be deeply unsettling for savers and retirees, who may log into their pensions account and see a big fall in the value of their fund. But calm at this moment, when those in the highest offices appear to be losing theirs, is the order of the day,” he said.
ADVICE & PLANNING
An important antidote to the worry or concern over falling markets (which undoubtedly will rise again) is time. As shown above, the crisis of today in the rear view mirror is a relatively minor blip but only seen once the threat to stability has passed.
Past performance is no guarantee or indicator of future returns.
