Timing isn’t everything

Despite a relatively rocky 2023, according to data provided by Timeline, global stock markets produced returns of around 15% for investors for the calendar year, attributed largely to a positive surge in performance over the last few months.

Consequentially, the end of 2023 saw UK investors flock back towards investing in equities as a reaction to their strong performance to end the year. As explained by the Calastone Fund Flow Index (FFI), this followed six months of a vast number of investors selling from equity funds between May and October 2023. Despite this, £449m was invested back into equity funds in November 2023.¹

Investors who decided to put their money back into equities at that time essentially chose to buy shares at a higher price than was available throughout the majority of 2023. This got me thinking – is there any other scenario in which people would be happier to purchase something when its price is potentially at its highest? So far, I have not been able to come up with anything! I mean, you wouldn’t wait to buy toilet roll until the price goes up, would you?

For the casual investor, the news and media are the main drivers behind deciding whether or not to invest in equities, painting extreme pictures of negativity and “never before seen” tanking of the market as a whole that will surely never recover – (SPOILER ALERT) even if this is not the truth. Whilst past market performance is no guarantee of future results, historically recovery has always followed periods of poor returns for equities. In reality, aside from taking information from the news, it would take a great deal of time, effort and resources to research market trends, to find and invest in equities that you believe are about to rise in value and help you to attempt to beat the market. This is where active fund managers come in.

SPIVA are a Standard & Poors (S&P) agency who monitor the performance of active funds and their managers against the major global stock markets. According to their data, only 7.81% of active fund managers in the United States were able to beat the market (S&P 500) over the last 15-years*. This trend can be seen for all regions that SPIVA gather data on, including Europe and the UK. Whilst the outlook for active fund managers improves over a one-year period (rising to 39.10% of managers beating the market in the US), consistent replication of these results is apparently impossible for the overwhelming majority. And these fund managers are afforded the time, effort and resources that I alluded to earlier, whilst still achieving poor results for those who invest in their funds.

The Timeline portfolios that the majority of our clients are invested in are called tracker funds. These essentially track the major global stock markets, aiming to achieve as close to market returns as possible with the aim of beating inflation, rather than beating the market itself. If you can’t beat them, join them! After all, we are trying to ensure that your money maintains the same purchasing power for decades in the future, to which inflation is the primary threat. The UK’s main stock market index, the FTSE 100, averaged an annual return of 7.3% from 1993 to 2023, with the average annual growth of inflation sitting at only 2.1% over the same period². The FTSE 100 provided average annual returns that more than tripled the growth of inflation. We believe that equities are the asset of choice when it comes to beating inflation over a long period of time.

If you have met with Dominic or myself in the recent past, you may have heard us refer to the importance of “time in” the market rather than “timing” the market. Leaving funds invested in equities for a prolonged period of time, which we would normally define as at least five years, affords your investments the time to recover from the inevitable, periodic falls that are certain to happen. It’s our job to help you “stay in your seat”, stick to your financial plan and remind you that these phases will come and go, just as they always have. Warren Buffett, often considered the most successful investor of all time, once said: “Wall Street makes its money on activity. You make your money on inactivity… it’s just not necessary to do extraordinary things to get extraordinary results.”

*Figures correct as at 18/01/2024

¹ Equity funds gather £449m inflows after six months of net selling (investmentweek.co.uk)

² How to invest to beat inflation – Times Money Mentor (thetimes.co.uk)

SPIVA | S&P Dow Jones Indices (spglobal.com)