Say one analysed the performance of the FTSE 100 over 10-year periods. If you look at every 10-year period since February 1996 on a rolling monthly basis, analysis shows that out of 120 discrete 10-year periods the FTSE 100 delivered a positive return over 10 years on 114 occasions, or 95 per cent of the time. The performance did include dividends being reinvested. Of the six times the analysis showed a negative period, they covered a continuous period with the 10-year period starting between 31 January 1999 and 30 June 1999, not too far off the peak of the dotcom bubble. Perhaps more importantly is the end date: 10 years on, the financial crisis was in full swing, markets were in dire straits and at their lowest levels in over a decade. The only time the FTSE 100 lost money over any 10-year period since 1996 was during the worst months of the financial crisis.
This picture was replicated by Barclays, which looked at the MSCI World Index since 1970. It showed that if an investor held his or her money in the index (before costs) there were no losses, so long as the investment was held for over 12 years, regardless of the purchase date.
However, investors do not take the risk just to break even, they also want a decent return on their investment. Our analysis showed the average return over 10 years was 69.5 per cent or 6.9 per cent a year (with dividends reinvested). So, on average, an investor would have seen decent long term returns before costs.
Clearly investing for the long term works and the longer you can remain invested, the better. Secondly, selling low and buying high is dangerous for your wealth. The study showed time in the market does count, but I would recommend that any investment strategy consider market falls as great opportunities to top up on your favourite investments.
One thing as individuals we have over companies, governments and central banks is our freedom to think longer term. We have no shareholders to answer to, no performance to report, just our own goals and objectives to achieve. If we can focus on that long-term view, all the short-term unpredictable volatility over which you have no control becomes relatively irrelevant. Any investment decision I make is based on when I believe I will need that money, which I hope is in retirement, 20 years or so from now. Looking longer term gives me much greater confidence and clarity when deciding where to invest.
Adrian Lowcock is head of investing of Axa Wealth
| Key points |
Human beings are designed to think in the short term. The last 20 years have been among the most exciting; the stock market has been volatile. Investing over the long-term is more profitable. |
