It’s time in the markets, not market timing that counts
Importantly, what has been consistent throughout history is the ability of the markets to face challenges, price them in, and move on to higher ground. Swift response and ongoing coordinated policy efforts by governments worldwide are taking hold, which will allow markets to find a bottom and move up. In fact, following particularly sharp corrections of equity and credit markets, or periods of financial stress, the rebound is typically quite steep.
Sitting on the sidelines can hurt your return experience, as during comparable periods of financial stress, equities gained an average 48% within six months of their bottom and 86% within a year as shown in Figure 1.
Figure 1: Six Major Periods of Global Financial Stress
| Peak to trough, % |
Peak to trough, months |
3m after trough, % |
6m after trough, % |
12m after trough, % |
|
|---|---|---|---|---|---|
| Finland 1990-92 | -67.5 | 31.5 | 66.4 | 94.4 | 176.9 |
| Japan 1990-98 | -61.9 | 107.0 | 9.5 | 38.2 | 60.5 |
| Norway 1990-92 | -54.3 | 25.1 | 10.4 | 30.3 | 79.6 |
| Sweden 1990-92 | -56.4 | 27.2 | 48.0 | 70.0 | 131.6 |
| U.K. 1990 | -19.6 | 8.9 | 8.0 | 24.8 | 31.9 |
| U.S. 1990 | -19.8 | 2.9 | 7.7 | 29.7 | 34.1 |
| Average | -46.6 | 33.8 | 25.0 | 47.9 | 85.8 |
Over time, markets have experienced tremendous turbulence and significant declines, similar to our current experience. Now is not the time to sit on the sidelines and wait for the markets to improve, or worse, convert paper losses into real losses. Look at what the TSX has typically done following a three month period of decline greater than 20 % (Figure 2). On average, it returned 14.1%. Five years later, the average total return was 37.6%.
So how important is that first year of returns? Without it, you missed out on 40% of the total five year gain.
Figure 2: TSX returns following three month declines of greater than 20%
Bill Chornous, CFA
Vice-President and Investment Strategist
Bill has over 20 years of experience in investment management at Investors Group.
“There will be no bell, no signal when the markets bottom. The markets will simply continue to do their job of eliminating excess, finding a floor, and resuming growth.”
Murray Mitchell, CGA
Vice-President, Portfolio Manager
Murray is Portfolio Manager of the flagship Investors Real Property Fund. He has been with Investors Group for 20 years and has close to 30 years of relevant experience.
“A pessimist sees difficulty in every opportunity. An optimist sees opportunity in every difficulty.”
–Winston Churchill
