Time is Money
- 21 April 2020
- 10 mins reading time
Time is one of the most valuable investment tools
Stock price falls over 35 years suggest that "spending" time now could "buy" money in the future
The more time that is allowed for investments, the more likely they are to follow the long-term trend
Time is one of the most powerful tools that you can use to build a successful investment portfolio. Let’s look at how you can make sure that time is on your side especially during this crisis.
As the chart shows, the FTSE All Share Index has had its ups and downs over the past 35 years, but the over-arching trend has been upward.
In 1984, the index was trading at around 500. So far this year, even during the Covid-19 crisis, the index has remained above 3,000. While keeping in mind that past performance is not an indicator of future performance, we can review how time has helped the patient investor.
In October 1987, a combination of interest rate changes, foreign trade agreements and computer-generated trades came together to send stock prices tumbling. The FTSE All Share Index fell by more than 35% in the space of two weeks.
For many investors who focused on short-term returns, this sudden drop in value was disastrous. But investors who focused on medium-term returns and sat tight for four years saw the value of the FTSE All Share Index restored…only to watch it drop again as a mild recession ensued.
You could argue they hadn’t spent enough time on their investments, as long-term investors with a 10-year investment horizon would have fared much better. By sitting tight and ignoring the noise, a long-term investor would have seen the FTSE All Share Index post an 87% increase since its peak just before Black Monday.
The following table shows how big the falls were following each of the events mentioned in the chart. It also shows what price the FTSE All Share Index had reached five years after each fall. The last column includes the number of years after the fall it took before the Index recovered losses and embarked on sustained growth.
The bond market crisis registered the smallest drawdown and required the shortest recovery period. In all of the other examples, a long-term investment horizon of 10 years or more would have taken your FTSE All Share Index investment past the downturn and back into positive territory.
Everyone is different and we all need a financial plan unique to us. But we firmly believe that investing isn’t just a financial process, it requires the “expenditure” of time. In this respect, the chances are that you’ll get what you pay for.
Any views expressed are our in-house views as at the time of publishing.
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