Now is not the time to wobble

The path ahead may seem uncertain… but now is not the time to wobble.

Stock markets reached record highs in 2017. But, as you may have noticed, they have been in decline since January. This graph shows the FTSE 100 so far in 2018. It’s not quite falling off a cliff, but it’s not climbing very fast either.

If you read our article of 7 December, you will remember we predicted this: “Relax? A horrendous crash is coming!”

We recognise that it’s obviously frustrating when your investment portfolio grows slowly, stays level or even drops. It’s much easier to relax when the markets are doing well, and harder to remain confident when the markets fall.

But now is the time to keep your emotions in check.

As always, we’re reaffirming our mantra that the markets always go up and down. Growth is not linear. Volatility is a normal part of investing.

Meanwhile, investors should stay diversified, sit on their hands, and stick to the game plan. Don’t panic. Because – long-term – the markets always go up.

We know what we’re doing

The Plan 100 philosophy is supported by the 2018 Global Investment Returns Yearbook recently produced by the Credit Suisse Research Institute in collaboration with Professors from Cambridge and London Business School. Considered to be the global authority on the long-run performance of stocks, bonds, bills, inflation and currencies, it measures data since 1900 on major asset classes (Equity, Bonds, Bills), inflation and currency for 23 countries and three regions (World, World ex-US and Europe).

The Yearbook shows that global equities have beaten bonds and bills since 1900, outperforming cash (Treasury bills) by 4.3% and bonds by 3.2% a year, as shown by the blue bars on this graph:

The authors predict that the margin by which equities are likely to outperform cash in future will be lower than the historical premium of 4.3% per year. Their long-run forecast is 3.5% – this is still double relative to cash over a 20-year period.

Among other findings, they also reported that:

  • Episodes of volatility, as in early 2018, are hard to predict, tell us little about future returns, and appear as mere blips in the long secular rise of equities
  • Contrary to recent claims, equities, not housing, have been the best long-run investment (Since 1900, the quality-adjusted real capital gain on worldwide housing is approximately 2% per year)
  • Globally, the returns and risks from housing have been between those on equities and bonds
  • Collectibles such as art, wine and musical instruments have beaten cash and government bonds
  • We should expect lower investment returns in future on all asset classes

If you’re still worried, watch this brief video by fund advisers, Dimensional, that gives further reassurance.

Lance Baron

Certified Financial Planner (CFP) based in East Sussex, UK. We support people in Southeast England with more than £500K to invest by building a financial plan that will help them live the life they want… until age 100