Sometimes people forget that investing has a scary downside to it. As global crashes come and go, the pain slowly fades whilst the market recovers and people’s investments crank up the money.
But the folks at Monevator (who we are big fans of), gives a timely reminder in a recent post of the major risks associated with investing just as the world economies are starting to show some cracks.
After some careful analysis, they share some pretty horrendous investing data that would put most people off investing for life if your risk tolerance couldn’t stomach it:
- UK’s biggest stock market crash was -71% from 1973 to 1974 where it took 10 years to recover
- Japan lost a whopping -98% from 1943 to 1947 which took 26 years to recover [we think losing WWII might have had a small part to play for that]
- US’ biggest loss was -60% during 1929 to 1931 taking 7 years to recover
It is not just the SIZE of the losses you need to be aware of, it’s also the FREQUENCY:
- UK experiences lost of 20% or more roughly one year in ten
- US experiences 20% roughly one in seven,
So the pain of these losses can happen every few years with the last one being in 2008/09. Are we due another crash? Possibly.
The figures mentioned above can give an indication of what *might* happen in any future bear market but there is obviously also a possibility that future ones might actually be worse. Being open to the fact that anything can happen is a good mindset to have so that you aren’t completely shocked if it all goes south and not panicked into making bad decisions.
Time in most cases is the remedy in these downturns where eventually the market will make a recovery if you can wait long enough but you can also ensure you diversify your portfolio globally so you are not susceptible to just one single country’s economy. Low-cost, passive index funds held over long periods of time is still something we strongly believe in as one of our main investment strategies – just don’t expect it to be always rosy year on year.