Short-term volatility and long-term investing
Source: FTSE All-share index
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
-50
-40
-30
-20
-10
10
0
20
30
-29
-29
-16
-6
-6
-10
-12
-40
-30
-16
-18
-11
-11
-10
-14
-11
-3
-15
-7
-35
Calendar year return
Intra-year decline
Important information
Returns are based on Total Returns in GBP, including dividends. Intra-year decline refers from the largest market fall from peak to trough within the calendar year. Returns shown are calendar years for the FTSE All-Share Index from 2004 to 2023. Data as of 31 December 2023. Indexes are unmanaged and cannot be invested in directly. Unless otherwise specified, Russell Investments is the source of all data.
Issued by Russell Investments Ireland Limited. Company No. 213659. Registered in Ireland with registered office at: 78 Sir John Rogerson’s Quay, Dublin 2, Ireland. Authorised and regulated by the Central Bank of Ireland. In the UK this marketing document has been issued by Russell Investments Limited. Company No. 02086230. Registered in England and Wales with registered office at: Rex House, 10 Regent Street, London SW1Y 4PE. Telephone +44 (0)20 7024 6000. Authorised and regulated by the Financial Conduct Authority, 12 Endeavour Square, London, E20 1JN. © 1995-2023 Russell Investments Group, LLC. All rights reserved.
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*Volatility is the range of price change an investment experiences over a given period of time.
**Intra-year declines refer to the largest market fall from peak to trough at any point within a calendar year. This chart helps demonstrate that these happen frequently, but, more often than not, the markets still reported a positive gain for the full calendar year. Whilst these can be periods of panic amongst both retail and institutional investors, staying calm (and staying invested) is crucial.
2006
For example, if you’d invested in the FTSE All-share index, at some point in 2006, your investment would be down -10%. However if you’d stayed calm and held tight, the investment would be up over 15%.
2008
If you’d invested during the financial crisis in 2008, at some point in that year you could have been down -40%. If you’d stayed invested, you’d still be down at the end of the calendar year, but a smaller loss of around -30%.
2019
You could have been down -7% in 2019, but ended up with a positive calendar year return of nearly 20%.
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If you look at all the orange circles, the average intra-year decline was -15.4%, which shows that volatility is normal. Despite this, the FTSE All-share index posted positive returns in 16 out of the 20 calendar years. It’s important to ignore short-term volatility and focus on long-term investing.
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Despite average intra-year declines of -15.4%, annual returns are positive in 16 out of 20 calendar years.
We know we’ve seen volatility come back into the markets since Covid. For the preceding ten years there had been a healthy bull-run combined with QE that allowed people to forget volatility existed… The last 18 months has been a reminder that it exists and, is in fact normal…
Intra-year declines versus Calendar year returns
Everyone feels rattled when stock-markets drop suddenly and unexpectedly. When the markets get messy like this, generally it’s because investors (institutional as well as retail) lose confidence. No matter how well portfolios are positioned, we must acknowledge that stock-markets can sometimes go down via the elevator and come back up via the staircase.
Intra-year declines refer to the largest market fall from peak to trough at any point within a calendar year. This chart helps demonstrate that these happen frequently, but, more often than not, the markets still reported a positive gain for the full calendar year. Whilst these can be periods of panic amongst both retail and institutional investors, staying calm (and staying invested) is crucial.
Any opinion expressed is that of Russell Investments, is not a statement of fact, is subject to change and does not constitute investment advice.
The value of investments and the income from them can fall as well as rise and is not guaranteed. You may not get back the amount originally invested.
-15.4
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The blue blocks represent the calendar year return.
This chart illustrates the returns of the FTSE All-share index over the past 20 years. The orange circles represent the largest fall from peak to trough within that particular year.
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It’s worth noting that we wouldn’t hold 100% equities in our portfolios and certainly wouldn’t hold 100% UK equities, as we believe a global multi-asset multi-manager approach provides a more reliable return pattern for our clients.
-6
-11
-10
-24
2018
2019
2020
2021
2022
-11
-8
2023