Lessons from ‘extreme events’

Attempting to time markets is very difficult (even the professionals find this a challenge).

So when an extreme market event occurs such as the Post World War II crash, or the Dot Com crash, remaining invested through the difficult times has eventually paid off.

While stock markets falls are painful, history does show us that they eventually recover. Here are some graphs attached.

The principles of long-term investing are lessons from history

Stay disciplined

by missing the 10 ‘best days’ in the stock-market between 2003 and 2017, your investment returns would have been 48% lower.

Volatility is part of investing

despite the last ‘Bull Market’ being one of the longest on record. There were still double digit (greater than 10% falls) in 8 of the 11 years.

Over the longer-term investments in growth assets is rewarded

In any 10 year period the odds of equities making a negative return is less than 10%. Deposit rates are at historically low rates and those that invest into growth assets (such as equities/shares) will be rewarded.

Diversification

An investment that is diversified will tend to be less volatile than one investment asset class on its own. Longer term investors are better able to weather any extreme market events if they have diversification.

Source: All market data is kindly provided by Zurich Life, FE Analytics and Bloomberg, April 2020

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This article was written by Rory Nelson, founder of Nelson Life. Rory is celebrating 20 years in financial planning this year. Professional qualifications include; UCD Specialist Diploma in Wealth Management, Pension Trustee Practitioner PTP, UCD Professional Certificate in Stockbroking,UCD Professional Certificate in Asset Management (SIA),  QFA FLIA, Pensions Diploma, Mortgage Advice Diploma, CFP module – Tax & Estate Planning and has a degree in BA Accounting & Finance. He has regularly participated in national financial press.

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