Markets will recover again

Feel free to reach out to PSG Wealth Adviser Ross Marriner directly.

It would be wonderful if the value of our investment portfolios kept rising without dropping.  Unfortunately, this does not happen in real life, as investing in growth assets such as shares involves experiencing negative returns from time to time.   

Market setbacks occur far more often than is commonly believed.  On average, equity markets experience a setback of 10% or more every eighteen months and a setback of 20% or more at least once every five years. 

Throughout history, stock markets have been subjected to a bumpy but generally upward trajectory over time, interspersed with sometimes dramatic setbacks.  The most recent major setbacks were the savings and loan crisis in 1987 (Black Monday), the emerging market crisis in 1997, the bursting of the dot-com bubble in 2001, the sub-prime crisis in 2008 (Great Recession) and the Covid-19 market crash in 2020. 

Setbacks are a regular feature of investing, and no two are the same. However, they all share one common theme: the market always eventually recovers. No matter how severe the losses may be or how long the recovery takes, the market rebounds and usually rises to new highs.

The key to safeguarding your wealth during these setbacks is your reaction.  A setback results in a temporary reduction of your capital, but this is only a reduction on paper.  The way to turn that paper loss into an actual loss is by selling investments when prices are down.  Some investors believe that their investments will be “safer” if invested in cash. By doing so, they will lock in their losses and miss out on the eventual recovery, which historically follows every market downturn.

Despite the setbacks we have experienced in the past, shares or equities have still been the best performing asset class over the long term.  It is a futile exercise to try to time the market.  No one, not even legendary investors such as Warren Buffet, John Templeton, Peter Lynch or George Soros, have consistently bought at the bottom and sold at the top of the cycle.

Investing inherently involves risk, but the key to successful wealth creation is having a solid, longterm financial plan that acknowledges that there will be periods of turbulence along the way. If you stick to your plan, you should be able to ride out these temporary downturns and benefit from the market’s eventual recovery.

Trade tensions and political noise, while loud, tend to fade in the face of enduring fundamentals, innovation, and resilience across global businesses.  Over extended periods of investing, the world will experience new crises and events that induce fear and anxiety, but, in the long-term, markets have rewarded patient and disciplined investors. An experienced Certified Financial Planner will be able to assist you to make sensible financial decisions during these turbulent times.