Investors remain cautious and according to Simon Evan-Cook, Senior Investment Manager for Premier's multi-asset funds, the last decade was filled with FOJI (Fear of Joining In). So, should investors act now or wait for a better opportunity?
sharply in the next 12 months, you should also consider how you'd feel if it rises for the next 12 years while your cash dwindles away.
Since 2009, being a FOJI victim has been a costly experience.
£100k stashed in a savings account earning the UK base rate for the last decade has grown to £105k. With inflation higher than the base rate for most of that time, the investor would have become poorer in real terms.
If they had chosen to invest in UK equities, they would now have something in the region of £267k.
Now, you should – rightly – be sceptical of such numbers. Travelling back ten years returns us to the end of the financial crisis. This is as close as we've been to a closing-down, all-stock-must-go equity sale in living memory. So, it's not surprising returns look good from then.
Many would-be investors look back wistfully: "If it fell that low again," they say, "I'd definitely be a buyer". Neatly forgetting, of course, that when it fell that low last time, they stayed out because it was too scary. But rest assured, if it fell that low again it would be similarly terrifying.
Perhaps then, we should compare today's should-I-or-shouldn't-I investment dilemma to 2007: a time when years of good returns projected an enticing scene onto the rear-view mirror, but investors were uneasy that they'd be joining the picnic too late. What fate befell those that did?
Well, assuming they bought in and stayed, they too would have been better off than those who chose cash. Put another way, if Paul put his £100k into UK equities at the very peak of that cycle (31st October 2007), the day before the UK market embarked on a 17-month, 46% slump, he'd still be better off today than Pauline, who left her money in a bank account paying the heady (but soon-to-be-slashed) base rate of 5.75%.
And by quite a long way – Paul would have £180k, while Pauline would only have £111k.
As with most things market, these decisions are complicated by a cocktail of behavioural biases. 'Recency Bias' is one, being our instinct to believe the near future will look like the recent past.
Our outsize hatred of regret is also a factor. Studies show humans will instinctively pay much more to avoid making a decision that has a regrettable outcome than we'd pay to experience a bigger positive result.
Knowing all of this doesn't make today's decision any less tricky of course. So, what should investors do? Naturally, everyone's circumstances are different, so there are no catch-all answers. A 12-year time horizon, for example, allows plenty of time to recover from the odd sell-off or two; 12 months doesn't.
Most useful, of course, would be an ability to predict the future. Sadly I know I can't do this. Also sadly, I know no-one else can either, but there are plenty out there who think they can. By all means pass them a couple of quid at a fairground for a bit of laugh, but you should otherwise keep your money well away from such fantasists.
All you can do is look at the facts. You may well decide that it still looks too risky to invest and, if you're the kind of person who will panic in a sell-off, staying out may be right for you. But in a world where inflation is higher than savings rates, taking no risk is risky too – as recent FOJI victims will attest. So, as well as understanding how you'd feel if the market drops sharply in the next 12 months, you should also consider how you'd feel if it rises for the next 12 years while your cash dwindles away. From here, either scenario is possible.
This document has been produced for information purposes only and does not constitute advice. If any of the information contained in this document is unclear, we recommend you consult with an authorised financial adviser. Persons who do not have professional experience in matters relating to investments should speak with a financial adviser before making an investment decision. For your protection, calls may be monitored and recorded for training and quality assurance purposes.
When you invest, your money is at risk because the value of investments, and any income from it, can go down as well as up and you could get back less than you invested.
Chart source: FE Analytics. Chart 1: 30.06.2009 to 30.06.2019, and chart 2: 31.10.2007 to 30.06.2019, taken on a bid to bid, total return (income reinvested) UK sterling basis. Past performance is not a guide to future returns.
Before investing, please read the Prospectus, Key Investor Information Document and Supplementary Information Document for the Premier Multi-Asset Distribution Fund and the Premier Multi-Asset Growth & Income Fund. These documents contain important information that you should consider before investing, such as the fees you will pay and specific investment risks.
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