The benefits of staying invested when the list of worries builds up.

Investing in the markets has been a prosperous time, and many have seen the benefits of staying invested.

Each of the major share indices worldwide has delivered a positive total return over the past 12 months, taking into account share price performance and dividends.

At the top end, the US has returned 32.5% as measured by the S&P 500 index; Japan’s Nikkei 225 index has returned 15.3%; and even the ‘unloved’ UK has lined investors’ pockets with a 12.1% return from the FTSE 100, according to SharePad data.

The benefits of staying invested have shown that on a five-year basis, the FTSE All-World global stock market benchmark has returned 81.6% in sterling terms, based on data from FE Fundinfo.

 

Source: AJ Bell, SharePad. Data to 15 November 2024

What are the worries?

Investors would take those kind of returns any day of the week, and what’s really interesting is how markets faced an extensive list of worries.

Five years ago, we were only months from a global pandemic, which caused considerable economic disruption. Staying invested was a challenge.

Since then, we’ve had Russia invade Ukraine, a rapid increase in inflation and interest rates, Middle East tensions, and disappointment over the pace of interest rate cuts.

Over the past year alone, there have been major political elections in the UK, US and France.

The unwinding of the Yen carry trade caused brief chaos on markets over the summer.

The Budget, mixed economic data globally, questions about when massive investment into AI will result in positive financial returns; the worry list goes on and on.

Source: AJ Bell

Staying Invested and Holding your nerve

An investor who held their nerve and remained invested in the markets will now be reaping the rewards.

Patience is vital when investing, and what has happened over the past one and five years perfectly illustrates this point.

History suggests that markets will always have something to worry about. This is often called ‘noise,’ and it’s important not to let it overwhelm you.

Don’t ignore it completely. Instead, be aware of the issues and how they might affect you, and try to hold your nerve.

While it is tempting to second-guess what’s happening in the world and how it might affect an investment, constantly trading in and out of positions can rack up costs, which can reduce returns.

Read about the benefits of mainstream investing.

New Year Resolution-Review your investments.

Diversification is an investor’s best friend.

Rather than trying to time the market by guessing that a certain sector will soon perform well, consider spreading your money across different areas.

This might result in parts of your portfolio lagging behind other areas, but when the tide turns, and the market rotates to favouring another area, you might already have exposure to the shifting trend.

It means spreading your risks across different geographies, sectors and asset classes.

Source: LSEG

Investors often like to discover what’s doing well and follow the crowd, hoping today’s winners will retain that status tomorrow.

The US stock market

For more than ten years, the US stock market has been one of the increasingly sought opportunities in this region’s best-performing regions, and UK investors have.

In its latest survey of fund managers around the world, Bank of America says this class of investors has the highest allocation of assets to US shares since August 2013, implying that professional investors see this as a vibrant place to make money going into 2025.

But that doesn’t mean they have restricted themselves to US shares unless that’s the only region in which their fund operates.

A fund manager with a global perspective will also have exposure to other parts of the world.

Creating a portfolio is like having two few cars on your driveway.

You may have a Tesla or an Audi, which looks smart and is nippy on the roads.

You might also have an old Volvo that is a dependable runner, because you know it’s always going to get you from A to B, even though it might be unfashionable. Think of portfolio construction in the same way.