Investing favours the patient

2022 has been a horrible year for investors. Inflation continues to be high, interest rates have been increased agressively, Russia invaded Ukraine and energy costs have skyrocketed. All of these factors point towards a recession in the next few months/ next year. Year to date, the market is down -9.70%.

It is understandably a hard time for investors, especially people new to investing. Last year saw a return of 31.64%, so many got caught up in the euphoria of easy gains. Even people who invested after the last financial crash in 2008, have had over a decade of almost positive annual growth. Someone who invested in 2010, would have seen an annualised return of 11.98%. To put that in numbers, someone who invested €100,000 would have €381,357 today.

If we look back a bit longer, this century has been a difficult time for investors. If you look at what markets have gone through over that time:

  1. Dot com bubble & September 11 – With the tech bubble bursting and the September 11 attack on the US, we saw the MSCI World Index fall by -58.20% peak to trough.
  2. Credit Crunch – As a result of reckless lending and risk taking, some financial institutions collapsed and others only survived with massive government bailouts. The MSCI World Index fell -52.85% from peak to trough.
  3. Covid 19 – 2020 saw the global economy almost shut down because of a pandemic, something we only thought happened in movies. The MSCI World index fell by -33.73% in just over one month!

Given all of those major catastrophes, including two occasions when you saw your wealth halve in value, the MSCI World Index returned 4.99% per annum over almost 22 years. For someone who invested €100,000 in January 2000, they would have €289,507 today. When we work with clients, we work off annualised returns of 5% – 6%, which shows that our modelling is in line with the returns when there are three massive disruptive events every 22 years.

We know that history doesn’t repeat itself and just because it happened before, doesn’t mean it will happen again. But we can learn from the past and we can see that staying invested and always thinking long term will produce results.

Steven Barrett

10 October 2022