Stay up to date


Two steps forward, one step back

Investing is a fickle thing. You can feel the elation of a few positive months, then the portfolio has a bad month and makes you feel foolish and scared. It feels like these bad months are coming thick and fast at times, but what does the data say?

If we look at our CVFP50 portfolio, in the last 5 years (to end of July 2023) it has delivered an average annual compound return is 3.03% per annum, adding up to a total return of 16.08%. If we extend out the time period to 10 years, the average annual compound return is 5.31% per annum, adding up to a total return of 67.83%.

Both figures only tell the story between two set points, not the volatile path taken in between. For example, we had a sharp drop in 2020 for Covid, and then the struggles since the start of the war in Ukraine and high inflation. In fact, in the five year time period there have been 23 months of negative returns. This means that 38% of the time, the portfolio showed a loss for the month.

In the 10 year performance example, there were 46 negative months equaling, yet again, 38% of the time period. A down month (or series of months) is nothing at all unusual. The key is that, historically, the months of gains make up for the months of losses.

Let’s go a bit more extreme and look at the period from 1 July 1993 to 30 June 2023. Thirty years is more reflective of a typical retirement time frame. In this time period, a 50/50 portfolio has delivered a negative monthly return 33% of the time. Even then, it has delivered an annual compound return of 6.59% per annum. This adds up to a total return of 579.15%.

I find all of this really very interesting. Investing can feel like a very bumpy ride when you look at your portfolio frequently. On a monthly basis, you have a 1 in 3 chance of the value being down based on the valuation at the same point last month. Horrible isn’t it?

However, you should be thanking this volatility. No, I haven’t gone mad! One of our central philosophies is that risk and return are linked. It’s precisely because the short term ride can be bumpy and painful, that investing NEEDS to deliver a return in the long-term. Nasty periods are not a bug of the system, they are a feature.

So what’s the message from all of this?

  • Investing isn’t a straight line experience.
  • On average, there will be down months over 30% of the time.
  • The good months, have historically made up for the negative months.
  • Try not to look at your portfolio too much. If you do, don’t let a fall in value affect your emotions.
  • Trust in the process, this too shall pass.
If you would like to discuss your portfolio and how it fits into your financial plan, please do get in contact.