Investing is about the long game however are people getting nervous as stock markets in the US and UK bump around their all-time highs. Newspaper reports are beginning to speculate that a correction may be around the corner.
The biggest danger isn’t the correction or a bear market, its being out of the market on average there has been a market correction every year since 1900 – that can’t be right? Well its true, however most corrections are over before you know it.
People avoid investing as they are terrified of losing. A survey by Prudential Financial found that 44% of Americans still vowed never to invest in stocks again because they were so scarred by their memories of the financial crisis of 2008 in another survey completed by State Street Applied Research stated that 60 % of millennial’s distrust financial markets with many having 40% in their savings in cash.
Investors typically feel the pain of loss much more intensely than the pleasure felt from financial gain. That pain often results in the risk averse behaviour, or risk avoidance.
I have met many clients who fit into this thinking they can be paralysed with the fear of loss and have held cash within all their portfolios for nearly 10 years.
If you were brave enough to invest in the UK stock market at the height of the financial crisis in March 2009, you’ll have reaped significant rewards, and then some. In the wake of the roaring bull market that followed the crisis, £100,000 invested in a FTSE 100 tracker fund seven years ago would have rocketed to an impressive £209,534 more than doubled.
(FTSE 100- (3512 on March 2009 to 7389 on 30 June 2017)
The longer you stay in the market, the better will become your investment returns. But you don’t have to believe me – you only have to be able to read graphs of various financial studies -it’s there for all to see.
If you want to be certain that you’ll never lose money in the financial markets, you can keep your savings in cash-but then you’ll never stand the chance of achieving financial freedom.
Warren Buffett says” we pay a high price for certainty “and we can see this from the example above.
UK investments experienced a long and sustained bull run after the stock market crash of 2008/09, when shares took a nose dive. But in the years, that followed, every asset class made substantial gains.
The extraordinary recovery of share prices was, in part, down to the Governments introducing several rounds of “quantitative easing”, whereby it pumped billions of pounds/Dollars of extra money into their economies.
So where now -Can you read the future?
Many expert have predicted the doom is hanging over us in fact RBS announced on 12 January 2016 that the FTSE market would fall by at least 20% and to get out of equities quickly, the return one year on to 12 January 2017 was a 24 % increase.
My advice for all Investors is ensure they get advice and your portfolios are well diversified, reviewed regularly and as they approach retirement maybe tilt into “safer” investments.
As for market timing? You’re heroic if you get it right. But you are also in a tiny minority it’s about time in the market not timing of the market.