Investing Post Coronavirus and what comes next? We are no doubt living in strange times. The COVID-19 coronavirus has spread across the globe quickly and governments and health officials have made a variety of changes to the way we live and work.
Global markets have reacted with much more volatility than usual. Global interest rates are falling and a growing number of companies have, or will be, revising their earnings outlooks because of concerns about their ability to continue business as usual, especially when it comes to their supply chains.
If you are one of the many South Africans who has followed the usually sage advice of investing at least some of your income as a way to invest in your future stability then you may be feeling very uncertain about continuing to do so. You may be thinking about changing your investment investing strategy. But according to many experts, you shouldn’t.
Investing Post Coronavirus
The Historical Case for Staying Put in Your Investment Strategy
Volatility and uncertainty are inevitable characteristics of stock markets and are in no way historically unprecedented. But it does scare investors, especially those that are newer to the concept, and that fear, unfortunately, too often leads to big investing mistakes.
Read the papers and the news and opinion online and you will read a lot of speculation about the post COVID-19 world, but the reality is we – and we covers everyone – just don’t know what’s ahead.
However there are familiar market patterns we can learn from when it comes to investments. Which is why the advice of many seasoned financial experts for long term investors is to do nothing.
Investing Post Coronavirus
The Lessons History Has to Share
Long term investing is just that. Slow and steady wins the race. Investors have long known that staying the course is one of the most important things to do — it’s just emotionally hard to execute especially in times like these.
Some of the best research on this topic comes from the so-called “Wizard of Wharton”, University of Pennsylvania professor Jeremy Siegel. In his New York Times best-selling book, Stocks for the Long Run, Siegel looked at the performance of equities from 1802 through 1997, the year the book was first published.
His findings were astonishing: Despite the day-to-day volatility that we all feel, the actual long-run returns of stocks are remarkably consistent.
According to his extensive research, and quoting from his book:
“Despite huge changes in the economic, social, and political environment over the past two centuries, global stocks have yielded between 6.6 and 7.2 percent per year after inflation in all major subperiods. The wiggles on the stock return line represent the bull and bear markets that equities have suffered throughout history. The long-term perspective radically changes one’s view of the risk of stocks. The short-term fluctuations in the market, which loom so large to investors, have little to do with the long-term accumulation of wealth.”
It is the last line of that paragraph that is perhaps the most important for long term investors: The short-term fluctuations in the market, which can seem to loom so large to investors, have very little to do with the long-term accumulation of wealth.
Siegel found that almost no matter what period you looked at, US stocks delivered about 7% after inflation. The Civil War, World War I, World War II, even the Great Depression (marked by the second black vertical line) were hiccups compared to the overall trend.
The pattern repeats globally, even for those nations that experienced catastrophic collapses. World War II, for example, sheared 90% off the value of German equities…but German stocks completely rebounded by 1958, rising 30% per year on average from 1948 to 1960. They went on from there to new highs. Averaged out over the long haul, their return is a consistent 6.6% annual real return, a figure that continues through this day.
The same is true for Japan, the UK, and yes, South Africa, along with all the other markets that Siegel has studied, which is most of them: in the short-run, volatility, but in the long run, profits.
Investing Post Coronavirus
Don’t Fall For the Hype?
The reason we often don’t hear much about the power of long-term investing in the mainstream media is that long-term investing is, to put it simply and bluntly, boring and cheap. Some of the financial sector thrives on public panic. By encouraging panic, parts of the financial industry make money only when you act. Big moves sell newspapers, and high trading activity very often means high commissions for online brokers.
The only people who don’t profit from this activity are investors themselves, because as it turns out, we can’t predict the future. So, for those making long term investments, stay with it. It is hard to stare down a significant market correction and stick to your plan but history is on your side as to the positive outcome of doing so.
Want to know more? or want to make sure you are following the best Investment advice, speak with one of Our Investment advisors today
Preparing for a Post Covid-19 South Africa