Investing could be rewarding. But it does need a long-term mindset of at least five years. Along the way, there will be times like now when markets fall.
These steep falls can be unnerving to just sit back and watch. But it’s important to remember that short-term uncertainty is sometimes part of the investment journey.
Take a look at the below table – these are the last three significant market falls to occur, along with the recovery that followed.
Peaks and troughs in the UK All Companies Investment Sector (total return including dividends)
||Drop from peak
||Gain five years after trough
||Iraq invades Kuwait
||Lehman Brothers bankruptcy
*The Credit Crunch/financial crisis originated with the US sub-prime mortgage debacle and subsequent tightening of credit in 2007. We have shown figures from the Lehman Brothers collapse as an illustration of the wider crisis.
As you can see, in the five years that followed these low points, markets had fully recovered and gone on to produce strong gains. Of course, past performance is not a guide to future returns – the economic and market conditions experienced in the past may not be repeated in the future.
However, the above table highlights the importance of holding on to those financial goals, even when markets are falling. Historically, many of the stock market’s best periods have tended to follow some of the worst days.