Welcome to the second Collingbourne review of annual investment returns. As with the first, our aim is to provide a different perspective and insight on the world of investing, focussing on things that a) you can control and b) matter. There’s no standard ‘market commentary’ waffle or predictions for the future.
Last year we looked at whether 2018’s negative returns were anything out of the ordinary by comparing them to our long-term planning assumptions. This year we will look at 2019’s returns alongside those from the previous 24 years, to see what lessons can be learnt.
The Randomness of Returns
First off, let’s take a quick look at the returns of major assets classes (groups of similar investments) in 2019;
Does this tell us anything interesting? In isolation, not so much – other than the fact that 2019 was a good year for risky assets.
It certainly doesn’t tell as anything about what the future may hold. But what if we compare these returns to those from recent history, do any interesting patterns emerge? The table below shows the returns of several major asset classes in each year from 1995 to 2019, sorted from best to worst;
The result is a patchwork quilt of returns. Humans are predisposed to seeing patterns (and we often see them where non exist), but I think most would agree one does not exist here.
An interesting exercise is to look across that top row of best returns. If you had been able to pick the winner each time, you would’ve certainly done well. In fact, if you had invested £10,000 at the start of 1995 and got those returns, you would currently be sitting on a little over £6.65m.
These are index returns which are not available for investment and make no allowance for tax and costs. This data is shown simply to show general pattern and scale.
So, there you go, only one correct decision a year needed to make your fortune. Sadly, there is no way of predicting in advance which asset classes will outperform. No one can – if they could, they would be on their way to owning the (financial) world. Although, there is an interesting story of a ridiculous contract permitting perfect hindsight investing.
Lessons
I came across a great phrase this week; ‘the market doesn’t have a memory’, which sums things up quite nicely. What has just gone will not tell you what the future will bring.
So, what to do? Avoid market predictions. Don’t try and time movements in and out of asset classes with the risk and worry this brings.
Invest for the long term; hold a diversified range of asset classes, with a level of risk that is right for you and your circumstances. Stick with it and try not to worry about the markets.
Disclaimer:
Data sourced from Dimensional Returns Programme: Total Returns, all income reinvested, GBP terms. Returns are based on market indices, representing individual asset classes, a full list of which can be provided on request. Indices are not available for direct investment and take no account of any costs or individual tax liabilities, that must be occurred when investing, which reduce net returns. These figures are provided for information purposes only.
This document should not be considered a recommendation to purchase or sell any particular investment. Care has been taken to ensure the accuracy of content, but no responsibility is accepted for any errors or omissions. We do not predict or guarantee the future performance of any individual security, investment, portfolio or asset class.