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Fowler Financial – Should You Stick Or Sell After A Crash?

Fowler Financial – Should You Stick Or Sell After A Crash?

The history of stock market falls and recoveries shows the advantage of sitting tight. 

Remember when Brexit was our biggest worry? March’s Budget already seems a distant memory. The first quarter of the new decade was certainly one investors would like to forget. The panic caused by the coronavirus pandemic saw US equities lose 23% to suffer their worst quarter since 1987. UK equities fell further, also recording their poorest three-month period for over 30 years. 

Of course, the potential for market shocks like this one is the risk investors take for the higher long-term returns possible from the stock market. Analysis by Schroders shows that, in the last 148 years, the US market has fallen 25% or more on 11 occasions. But how long did it take to recover those losses? What does history show us about whether the right decision would have been to sit tight or dash to cash?

fowler financial US stock market information table
S&P 500 Index discrete one-year returns 
 Mar 2019 – Mar 2020 Mar 2018 – Mar 2019Mar 2017 – Mar 2018 Mar 2016 – Mar 2017 Mar 2015 – Mar 2016 
 -2.8% 17.1% 1.0% 33.8% 4.4%
Source: Financial Express. Data shown in both tables is for the S&P 500 Total Return Index. Past performance is not a guide to future returns.

In seven of the eleven occasions, investors who held their nerve would have got back to their pre-crash value in two years or less. In contrast, investors who had switched to cash after the first 25% of losses in 2001 (dotcom crash) and 2008 (global financial crisis) would still be out of pocket. At first glance, the recovery periods for those who stayed invested in the market might seem quite long.

Amid the market turmoil, UK interest rates have also dropped to their lowest level in history, and look set to remain near record lows for many years to come. It means that investors who have jumped into cash have effectively given up any hope of recovering the money lost during this correction.

It can be difficult to sit tight – and there is a real possibility that the recent market lows will be tested again as the economic damage caused by COVID-19 becomes clearer – but investors who do are likely to end up better off in the long run.

An investment in equities does not provide the security of capital associated with a deposit account with a bank or building society.

The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and the value may fall as well as rise. You may get back less than the amount invested.

FTSE International Limited (“FTSE”) © FTSE 2020. “FTSE®” is a trademark of the London Stock Exchange Group companies and is used by FTSE International Limited under licence. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

© S&P Dow Jones LLC 2020; all rights reserved.

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Based in Exeter, Fowler Financial Planning provides financial advice to individuals and SMEs in the local area, across the South West and in London. With an ever-changing environment and changing client circumstances, we feel it is essential to develop bespoke financial plans for clients to help them achieve their goals, and, more importantly, to review these plans regularly to ensure they remain current and accurate. Fowler Financial Planning is a Partner Practice of St. James’s Place Wealth Management plc. 

Contact Fowler Financial Planning: 

www.fowlerfp.co.uk  | Fowlerfp@sjpp.co.uk | 01392 790623 / 07931 443415

Fowler Financial Planning is a trading name of Fowler Financial Planning Ltd, an Appointed Representative of and representing only St. James’s Place Wealth Management plc (which is authorised and regulated by the Financial Conduct Authority) for the purpose of advising solely on the group’s wealth management products and services, more details of which are set out on the group’s website www.sjp.co.uk/products. The ‘St. James’s Place Partnership’ and the titles ‘Partner’ and ‘Partner Practice’ are marketing terms used to describe St. James’s Place representatives.

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