At times like this, it is sometimes hard to keep a focus on the “big picture”. A prolonged period of market volatility, like the one we are in the midst of at present, can be hard to handle. Many find it hard to hold onto wisdom that was more acceptable when things were less troubled.
At a recent presentation given by fund managers Armstrong Jones, their Chief Economist David McClatchy revealed some very interesting figures about investing in the best and worst assets over the last 20 years. Imagine you and a friend each had $100,000 to invest in 1982. Each of you had to decide each year where you would put the money. You decided you would choose the best performing assets whilst your friend chose the worst.
What happened?
Best Performing Strategy $100,000
In Cash once
In Property 2 times
In NZ Shares 5 times
In International Shares 8 times
Went backwards 4 times with largest losses of
–47.2% and –15.4%
After 20 years $701,601 10.23% per annum
Worst performing Strategy $100,000
In Cash 2 times
In Property once
In NZ Shares 6 times
In International Shares 8 times
Went backwards 4 times with largest losses of
–6.8% and –4.6%
After 20 years $2,069,237 16.36% per annum
What all of this clearly shows us is that when asset prices are low it’s the time to buy not sell.
But what about just “hanging in there”? Does just staying invested in something that’s moving around a lot have any merit? Yes, it does. Here’s a further part of Armstrong Jones’s study.
In the last ten years there have been 2526 trading days in the share market (S and P 500 in this case).
What return would you have had by trying to time the market? Where would you have been if you’d missed some of the best days?
Annualised return
Missed the 30 best days 0.08
Missed the 20 best days 2.63
Missed the 10 best days 5.99
Missed the 5 best days 8.06
Invested for all 2526 days 10.66
Try to remember that it’s time in the market that counts, not timing the market.
Stick to your plan and don’t get panicked.
If you have over NZ$350,000 to invest and want truly impartial advice, contact us to find out how we can put your money to work to fund your important goals.
What other investors say about us>>
