Disclaimer: Views in this blog do not promote, and are not directly connected to any L&G product or service. Views are from a range of L&G investment professionals, may be specific to an author’s particular investment region or desk, and do not necessarily reflect the views of L&G. For investment professionals only.
Chart of the month: Don’t fear the dip?
Major falls in global stock markets often dominate the headlines. They fuel panic and confusion, potentially leading to rash decisions by investors. But how long has a market recovery actually taken historically?
Just a few weeks ago, we saw fear return to markets. Following the US announcement of a new global tariff regime, global equity markets experienced sharp declines. These dramatic movements were widely covered in the press, with headlines warning of instability and negative economic fallout.
What has received far less attention, however, has been the rebound. Over the past month, many major indices have quietly climbed back towards or even above their pre-announcement levels. But with far fewer column inches dedicated to the recovery, it’s understandable that many investors might still believe markets are lost in their April doldrums.
This contrast in coverage — panic during downturns, silence during recoveries — is nothing new. It’s been a recurring theme for decades. It partially stems from the idea of loss aversion, that investors are more sensitive to negative performance than the equivalent positive performance. Media organisations know this, so put more emphasis on the chaos. This month’s chart is a timely reminder that it can pay to remain calm, stay invested and ignore the noise in the wake of significant market falls.
Looking back over the last 50 years, there have been 18 instances where a diversified global 60:40 portfolio experienced a decline of at least -10%. The average time it took to recover? Just 209 days. In fact, in over half of these sell-offs, the portfolio broke even and reached new highs within a single year.
Only during the most severe crises — like the early 2000s tech crash or the global financial crisis — did a recovery take several years. Yet even in those cases, a patient investor with a five-year horizon could have potentially seen positive returns simply by staying the course.
The key message? Market volatility is inevitable. But history shows us that recovery can come sooner thank you think. For long-term investors, we therefore believe that staying invested through the noise can prove a wise course of action.
Past performance is not a guide to the future. It should be noted that diversification is no guarantee against a loss in a declining market.
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