Short Term Pain, Long Term Gain
Most people that you talk to about investing would understand the principle of investing for the long term. We have seen charts of how markets continue to trend upwards despite the many crisis events that have happened.
That’s awesome however, that is also like someone standing at the start line of a marathon and pointing to the end point and saying that’s where I’m going. The hardest part is enduring the pain and discomfort on the way to the finish line.
Global markets (including emerging markets) have averaged about 8% per year in SGD since since 1988 to 2022. That means that $100,000 compounded at that rate turns into $1,000,000 in slightly under 30 years — the typical accumulation time frame of an investor.
The chart above shows the calendar year returns for global developed and emerging markets since 1988, as well as the largest intra-year declines that occurred during a given year.
Intra-year declines do not necessarily lead to negative years.
Despite significant intra-year declines, calendar year returns were positive in 25 out of the 35 (71%) years studied.
The median intra-year decline is -11%.
Despite the fact that markets experience declines every single year, they end up positive for the year most of the time. Investors have to accept market declines as a natural process of markets in their journey towards new highs and opportunistically take advantage of these events by deploying capital when the market offers discounts, boosting long-term returns.
The second most important thing an investor must do is to stay seated during these declines as they occur with regularity while on the way to making new highs.
An adviser that is able to help you achieve the above two points will add tremendous value to you, not only financially but equally important, emotionally. A short video created by American fund manager, Dimensional Fund Advisors perfectly illustrates this below.
Most of us would trust an accomplished physician to manage our health. After all, physicians have specialised training, real-world experience and access to tools outside the reach of the general public. Most importantly, they took an oath to prioritize the patient’s health over their own interests.
In the way same, GYC adapts insights from financial science to each client’s individual situation. We look at clients’ financial health holistically and work with them to create a plan that aims to accomplish their unique goals. We are a trusted partner who can help when times are tough.
If you would like to know how you can invest with a peace of mind and increase your probability of success, click here to schedule an exploratory chat with us. (Complimentary 30-minute session)