INTERESTING FACTS – SCHRODERS
Thank you to Schroders for some interesting facts. https://www.schroders.com/en/insights/economics/downturns-this-deep-can-take-a-long-time-to-recover-from-financially-and-mentally/ apparently since 1871 there have been eleven times when the Market (the S&P 500) has dropped by over 25%. The median recovery point from such a drop has been 1.8 years. In seven of those 11, full recovery took less than 2 years and three took between 4 and 5 years. Those who shifted to cash after the 1929 collapse (a fall of 80%) had to wait 34 years before break-even. Those who stuck-it-out only waited 15 years and those who drip-fed-in additional small investments only had to wait 7 years. Those who rushed for the door in 2001 (tech bubble bursting) and 2008 (financial crisis) would still be out-of-pocket today.
Over the longer term, over the last 148 years, US stocks have returned an amazing 8.9%pa which is 6.7%pa ahead of inflation. Cash returned only 4%pa and clearly at the moment that is effectively zero.
CASH LEVELS
Not made as a prediction of anything but a survey has found that portfolio managers’ cash levels are the highest since the 9-11 terrorist atrocity. When added to private investor activity (withdrawing rather than investing) historically, extremes tend to represent some of the best times to invest. It is not going against the masses just for the sake of it but recognising that herd mentality tends to do the wrong thing at the wrong time (or the right thing at the wrong time) as we “feel” the pain of losses many times more than the jubilation of profits. Rationally, it is appreciated how difficult it is to buy when things are very depressed in price as the reason they are depressed is the expectation that they will become even more depressed. If the expectation for the future was rosier, then clearly the bottom would have passed and the asset value would already reflect the improved consensus view going forwards.
“Waiting on the sidelines” for conditions to appear more favourable to invest is an extremely difficult strategy to get right and most fail. Effectively you are trying to time the market, which even experts struggle to achieve successfully and consistently. Typically, by the time you reinvest, the best of any recovery has already occurred (which has helped you make your decision!) so you will then pay higher prices. Instead, we always recommend patience and a longer-term outlook with investments in stock markets. Volatility has always been a consideration with this type of investment but rather than reacting to it negatively by withdrawing money, we suggest ignoring it, if possible, by remaining invested. If anything, we encourage additional investments, where affordable and where the investor is capable of accepting the possible short-term volatility, with separate cash reserves. Monthly additions could be a sensible option to “average out” entry into a volatile market. Of course, valuations can continue to rise and fall.
