A Wealth of Information
Professional and Private Investors today have access to huge amounts of data on asset classes and how they have performed over the long term
Below we can see the US Stock Market since 1900
But are we using this information to our advantage?
When investing we should be asking oursleves not do we have the best funds of the last five to ten years or are we in the latest fad; instead we should be focused on the mix of assets that we hold and how they may perform in the different types of conditions.
Whats happened in the Last Fifty Years?
An awful lot is the answer! The last few months have reminded us all how fragile our World is and that its impossible to predict what is around the corner. When it comes to investing though we can use all of this available data to see what would have happened to portfolios in different historic scenarios and how they might respond in similar circumstances should they occur again.
These events may not happen again but simliar events will; instead of trying to predict outcomes, wouldnt it be better to prepare for potential eventualities?
Looking Back in Time
Using historic data on major asset classes we can see how a portfolios current asset allocation would have performed across a long time frame
The Sample Portfolio above Compared to UK Equities and Cash below from 1973 to 2019
A great return from the portfolio and one I would definintley like but what about its worst days, could I put up with the risk? Below are the maximum losses it suffered over the same period.
This Portfolio suffered in the high inflation of the 1970s, again in the recession of 2002 and the Financial Crisis of 2008/2009
Whilst those losses look large if I am a long term investor I shouldnt be worried as virtually every five year period has produced a positive result
If I cant face the prospect of those large declines then I need to change my allocation reduce the risk and maybe accept a lower prospective return
There are lots of other great statistics and historical evidence that we can use to build a framework to help make informed investment choices about how to achieve financial goals
Credits:
Created with images by NicoElNino - "Finance trade manager analysing stock market indicators for best investment strategy, financial data and charts with business buildings in background" • Uolir - "Salon vintage" • Norman Chan - "Newspaper headlines - finanical crisis on 2008" • Pixel Pusher - "Berlin Wall" • pincasso - "EMERGING MARKETS road sign" • Campaign Creators - "untitled image"