2021 was a great year for investors. The stock market was just going up for most of the year as the world economy was coming out of the Covid 19 panic. If you had invested in the Global Stock Index, your money grew by 30.98%. Think of that, if you invested €100,000 at the start of the year, you had €130,980 at the end of it. And besides doing a bank transfer, you did nothing. Investing is easy.
But the end of 2021 saw the start of volatility in the market as high inflation started to bite. That continued into 2022, where double digit inflation meant that Central Banks had to take action and increase interest rates. Even the ECB, who said they would wait, were forced into action and increased rates.
February 2022 also saw Russia invade Ukraine. Sanctions against Russia followed, who are a massive supplier or energy and grain, especially to Europe. There was fears of Europe not having the energy supply it needed. Energy prices spiked as other industries tanked.
In the US, tech stocks fell the most with the NASDAQ 100 falling -28.25% in one year. Compare this to the S&P 500 which fell -12.99% and the Global Stock Index which fell -12.85%, with energy stocks proving that diversification in your investments works.
2023 was another good year for investors. Despite more inflation rate hikes, inflation rates have started to come down and Central Banks have left rates the same at the end of the year with the hope of cutting rates in 2024. Add in the earnings reported by the world’s biggest and best companies and we have seen a rally at the end of the year to top off a great year for stocks.
The NASDAQ rebounded strongly with returns of 49.21%, while the more diversified S&P 500 and Global Stock Index returned 20.03% and 19.54% respectively.
If you invested in a Global Stock Index in 2021, you would have gotten an annualised return of 10.93%. Your €100,000 would be worth €136,504. If you were unlucky enough to invest at the start of 2022, you would still have €106,339 at an annualised return of 2.07% over 2 years.
Investing involves taking risk with your money. If there was no risk, everyone would invest and in doing so, the cost of buying stocks would rise and the future returns would decrease to close to zero. So it is good that there is risk of a fall in value of your money. By investing in quality companies, you will be rewarded in the long term with superior returns.
It is important not to get too euphoric when markets do well and not to despair when they do badly. Keep an eye on the long term goal of making money by investing in great companies.
8 January 2023