It has been reported that “only 18 per cent of investors said they stuck with their investment plans during the volatile three-month period at the end of 2018” when “the MSCI World index fell 13.9 per cent, the 11th worst quarterly fall since 1970”. The Schroders Global Investor Study 2019 added that “In the final three months of 2018, when the MSCI World index of global equities fell sharply, only 18% of people kept their investments the same, and a further 9% made changes to their portfolio but kept the risk profile the same.” According to this report in the UK we stay invested in an investment product for only 2.9 years on average.
I read that and decided to review my own experience of this situation. At the time I noticed the drop in the market in that quarter and especially in October but I didn’t feel any inclination to react to it. My only transactions during the quarter were automatic and manual dividend re-investments already decided upon, a fund switch within my ISA, and a drawdown sale of dealing account assets. The switch was a minor one concerned with adjusting the relative sizes of a global fund (increased) and an Asia Pacific fund (reduced). The asset sale was also a routine one that I carry out every three months at present.
My total return during the full 2018 year was a fall of 6.45%. My total return during the final quarter of 2018 was a fall of 5.91%. October 2018 was my highest losing month since beginning drawdown in January 2014 but was not much worse than some other months in 2014, 2015 or 2016.
I follow the markets and the news affecting the markets and aim to be informed but I also aim to be sceptical of commentaries on the market situation and of “noise” in the markets. News of Trump, trade wars, USA versus China, interest rates and Brexit may be interesting and may influence market activity or may provide an explanation for market moves, but it doesn’t give me a reason to trade.
Rather than considering the market situation I try to stay focussed on my own situation. I’m broadly happy with my portfolio allocations to equities in the UK income, global income, and Asia Pacific income sectors, and to UK real estate and UK bonds, and to be almost fully invested. I might switch between assets to adjust position sizes or to increase my ISA and reduce my dealing account, but otherwise I am just re-investing dividends and selling down assets in my dealing account to fund my expenditure. In 2018 my portfolio turnover was about 7%. My current holdings have been held for an average of 9.76 years.
I began investing in equities in 1986. In thirty-three years, I have had nine losing years of which four were worse than 2018. So, I regarded 2018 as a disappointing year but it didn’t compare with 2001-2002 (-27%) or 2008 (-23%).
My first experience of a loss in the markets was in October 1987 when I remember my £3,000 invested fell to be £2,000 in only a few days. It happened so quickly that I didn’t have a real opportunity to react. These were all certificated unit trusts or privatisation shares and my dealings then were by post. Fortunately, I didn’t need to access these funds and not having any desire to recognise this loss I stayed invested. My losses were recovered by the end of 1989. Interestingly the full 1987 year isn’t a loss year for me or for the UK market. The October fall was a correction to gains made earlier in that year.
I now prefer to take a one-year view or a calendar year view of stock market moves so as to put short term volatility in perspective. I now regard it as very useful to have had that experience of loss in my second year of being invested and when I only had £3,000 invested. It prepared me to deal with similar percentage losses on much bigger numbers in both 2001-2002 and 2008. In both cases I stayed invested, and invested more when possible. I held my nerve and with hindsight I think that was the right thing to do.
Assuming the 18% is correct – I must admit I find that figure somewhat hard to believe – then rather a lot of people must be invested above their real risk tolerance. A good article is at http://www.theretirementcafe.com/2014/09/assets-allocation-in-smidges-and-dollops.html and Table 1 is rather informative, albeit from a US perspective.
For a UK equities view, the Table on page 116 of Ned Cazalet’s report at
https://www.professionaladviser.com/digital_assets/8494/cazalet-consulting-when-im-sixty-four.pdf is educational.
Apologies if this comment has been posted twice, but the blog site crashed when I originally submitted it yesterday.
Thanks for commenting. The research covered “those who will be investing at least €10,000 (or the equivalent) in the next 12 months and who have made changes to their investments within the last 10 years.” I think their research methods will have likely excluded many investors so I too find the 18% hard to believe.
In terms of risk tolerance and holding equities, I think you need to be able to withstand at least a 10% fall in your investments without selling out. I feel I could face a rerun of anything since 1985, and in my records only 2001, 2002, and 2008 have breached 10% on a calendar year basis.
I read the Schroders document and reached a similar view.
Re risk tolerance: each to their own; personally my risk tolerance has increased as I have aged. However, it is probably a good idea that folks go into the market with their eyes open – and your article clearly spells out exactly the sort of bumpy ride an investor could be in for over a timescale of 30+ years.
Well done to you and your blog for providing some much needed real-world insight and experience.
Out of interest, your annualised records seem to pretty much agree with the annualised UK equities data (1990 to 2013) at page 81 of the referenced Cazalet report. I guess the variances are down to the particular features of your holdings, e.g. global diversification, IT’s, etc. Does that make sense to you?
Thanks for your comment. I touched on my investment returns when I blogged about trackers on 24 February. In recent years I have been slightly ahead of the FTSE AS UK Index based on the performance of my mostly UK IT holdings. I hope and expect this to continue in general but not necessarily in each and every year. My diversification to Asia Pacific, global, property and bonds may help or detract. I have little exposure to the US so can’t compete with a global index.
Thanks for the info. Any thoughts you wish to share on “I have little exposure to the US”?
Thanks for your question. As an income investor looking mostly for 4%+ yields I’m not able to really invest in the US or any global fund with heavy US exposure. Have a look at my blog post on 15 March and my added comments. £1 of income is still 38% cheaper in the UK than in the US.