Updated: Jan 12
Although investing in the markets brings great returns, it is also coupled with volatility and it’s these periods of volatility that can often shake investors and drive them out of the markets. It’s vital from an investment perspective to view the markets objectively as they recover over the longer-term.
There have been 27 market corrections since World War II with an average decline of approximately 14%, with recovering taking four months on average. A correction is defined as a 10% decline in one of the major US stock indices – typically the Dow Jones Industrial Average or the S&P 500. From this data, all market corrections have surpassed their high before the correction happened and have risen a lot higher.
When market corrections do occur, the Investment Team at Reeves analyses all options holistically. This includes using our quantitative modelling tool which quantifies the extent to which the fund has corrected given its past performance, along with qualitative information from fund managers and our research tools. This provides a detailed picture to the Investment Team of the best course of action for the portfolios.
In certain circumstances, we do make changes to the portfolios in periods of market volatility to maximise the returns. For example, in the March 2020 crash, we allocated a higher portion to equities as we believed these would benefit from a higher level of growth in comparison to other asset classes.
If a hypothetical client sold their holdings because of the March 2020 correction last year, they would have missed out on an average of almost 40% performance growth. This demonstrates why it’s important to be reassured during turbulent market conditions and not to panic from market volatility as volatile periods will always be an aspect of investing in the financial markets.
Investments can go down as well as up and you may not get back the original capital invested. This newsletter is for information only and should not be seen as advice or a recommendation to take action.