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Keep calm and carry on investing

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Summary

Why holding your nerve when the going gets tough could pay off in the long term.

2 min read

Cashing in when markets fall could mean missing out when they bounce back.

There can be no doubt. If you invest, 2018 was a tough 12 months. It was a sorry story of shrinking returns that didn’t even have a happy ending. A year plagued by a bellicose trade environment, a Chinese economy under pressure and tighter monetary policy from central banks – among other things – finished with the second worst December on record for equities.

But – and it’s a very big but – history shows markets can rise quickly from the ashes. And one month into 2019, that’s exactly what we’re seeing.

Lilian Chovin, Coutts Investment Strategist, says, “With pretty much all major markets ending 2018 down, you might be tempted to pull the plug on your portfolio and run for the hills. But patience, not panic, should prevail. Markets with good and healthy fundamentals tend to recover eventually.

“We even started to see this at the very end of last year. On Christmas Eve, US share index the S&P 500 was down 2.5%. But on Boxing Day it was up 5%. That’s not a Christmas miracle, that’s markets.”

Market falls can’t last forever. Generally, the S&P 500 has produced positive returns more often than not. Total annual returns since 1990 show it was only down in six of those 28 years.

Past performance should not be taken as a guide to future performance. The value of investments, and the income from them, can go down as well as up, and you may not recover the amount of your original investment.

 

Markets moving upwards for now

The post-Christmas upswing seems to be continuing into the new year. The FTSE 100 is up 3.6% so far in 2019, the S&P 500 is up 7.9% and MSCI Europe is up 6.3%, as at 31 January. In fact, the US has seen the best January returns since 1987.

We still believe markets will continue to have their ups and downs this year and that challenges remain – we are in a period of slowing growth and political uncertainty around the world. But as we make clear in our 2019 investment outlook, Children of the Revolution, we still see a growing global economy and opportunities for investors.

There is a lot happening in the world to make investors smile, after all. The US Federal Reserve announced this week that they are putting rate rises on hold for now and looking at “flexible options” for scaling back bond repurchases. This will reassure investors concerned about the pace of monetary tightening in the US.

In the meantime, most US companies which have reported their latest financial performance have beaten expectations. And trade talks between the US and China appear to be making progress.

The current climate does serve as a reminder, however, that the value of investments and the income from them can fall as well as rise, and you may not recover the amount of your original investment. It’s also always worth remembering that past performance shouldn’t be taken as a guide to future performance. 

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“There are usually only a handful of great days in stock markets each year, and if you miss even just a few of them you’ll dramatically lose out.”
Lilian Chovin, Coutts Investment Strategist

Don’t miss out on the best days of trading

At Coutts we tell clients that sound investing is about sitting tight, thinking long term and not being spooked by short-term scares. One of our favourite phrases is that it’s about time in the market, not timing the market.

Looking at UK shares over 15 years to the end of 2018, if you had stayed invested for the whole period you would have seen an annualised return of 6.5% a year. But missing out on the 10 best trading days in that time would reduce it by two thirds, to a little under 2.1% (based on the MSCI UK Index with dividend income reinvested).

And missing those days could be a very real risk if you jump ship once the waters become choppy. Most of the best stock market days in history have come soon after major market downturns.

Lilian says, “There are usually only a handful of great days in stock markets each year, and if you miss even just a few of them you’ll dramatically lose out.

“Rebounds in general are a crucial part of total returns.”

Find out more about investing with Coutts

When investing, past performance should not be taken as a guide to future performance. The value of investments, and the income from them, can go down as well as up, and you may not recover the amount of your original investment.

About Coutts Investments

With unstinting focus on client objectives and capital preservation, Coutts Investments provide high-touch investment expertise that centres on diversified solutions and a service-led approach to portfolio management. Our investment process is as disciplined as it is creative – ensuring tailored solutions with robust results.

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