Some Holiday Perspective
As the holiday season approaches, it’s a good chance to sit back and reflect on what really matters, away from the day to day activity that accompanies us through the year. Those who have been following markets in 2022 will know that returns so far have not been great with investors remaining worried about high inflation, slowing growth and aggressive rate hikes.
With plenty happening during the year, the temptation to keep a very close eye on investment returns is high. At first glance it might therefore seem a little worrying that only just over half of the days this year have delivered a positive return for shares. But this is exactly in line with history. Over the past 50 years, ‘only’ 52.4% of days have seen a market rise. Put another way, when you look at the share market on any given day, whether it’s gone up or down is pretty much a coin toss.
Put that together with our emotional tendency as humans to feel twice as much pain from a loss as we do pleasure from a gain. It’s then pretty clear that someone who checks their investment balance every day is not going to have a very pleasant time!
It gets better though. Despite ‘only’ rising on 52.4% of days, someone who just checked in annually would have seen a positive return 72.8% of the time. This rises to 94.2% of 10-year periods and all 15-year periods, reaffirming that most short-term returns are ‘noise’ for someone with a long timeframe.
In investing, like in many things in life, the best way to have a good experience is to have the right perspective.
Thinking about it this way, long term saving and investing has some similarities to going on holiday. When you’ve packed up and headed out on the road to your destination, if you run into roadworks on the way, you’re unlikely to respond by turning the car around.
And when you get there, with glass of wine in hand, you probably won’t call the cattery or dog kennel each day to see how the pets are getting on.
So feel free to sit back this summer – if your investment approach has been chosen with your adviser to be in line with your timeframe, aims and ability to ride out shorter term ups and downs, then your portfolio will thank you for it and you will enjoy your break so much better.