Four charts on the benefits of staying invested during the coronavirus market dip

These four charts may help you understand the current market volatility as a result of Covid-19 and what you should know as an investor. Remember that markets have seen downturns like this before and history shows dips are followed by recoveries.

 

Time reduces the volatility of returns

This chart shows a comparison of the highest and lowest returns for various investment time frames from December 1980 to December 2019. For example, the results for the one-year investment time frame are based on 457 sample one-year periods: December 1980 to December 1981…December 2018 to December 2019.

Chart 1
Sources: Refinitiv. Indexes used: Canadian equities, S&P/TSX Composite Index; U.S. equities, S&P 500 Index; global equities, MSCI World Index; Canadian bonds, FTSE Canada Universe Bond Index. Based on monthly total returns (CDN$), except S&P 500 Index. Past performance is no guarantee of future results. The index returns presented are calculated monthly total returns in CDN$ (includes reinvested dividends) from December 1980 to December 2019. The three-, five-, ten- and 20-year periods reflect annualized returns. It is not possible to invest directly in an index. Returns are in CDN$ and include reinvested dividends. As at December 31, 2019.

The cycle to success

Market volatility can cause lots of panic, especially one that is linked to a global tragedy like the coronavirus. Markets have been, are and always will be cyclical. Historically, markets that have gone down eventually recovered.

This chart is a simple way to look at how many investors feel during an economic downturn. When markets start to recover, those who stayed invested tend to feel relieved, because they may benefit from the market recovery.

Chart 2

Don’t miss out on the market’s best days

Since we can not time the market, it can be tempting to pull out your money from fear of potentially losing it all. What you don’t realize is that you put your portfolio at the potential risk of missing out on the market’s best day.

The chart below shows that a $10,000 investment can become $5,020 by missing out on 60 of a market’s best days.

Annualized returns in the S&P/TSX Composite Index

Chart 3
Source: Refinitiv. S&P/TSX Composite Index total returns from January 1, 1986, to December 31, 2019. Past performance is no guarantee of future results. It is not possible to invest directly in an index.

 

A history of epidemics and global equity returns

History has shown that when pandemics happen, markets may see some economic downturn, but they also recover. This chart below shows how returns from global equities have been affected by 12 pandemics over the last 50 years. The conclusion: markets recovered.

MSCI World Net Total Return US$ Index

Epidemic

1-month
return (%)

3-month
return (%)

6-month
return (%)

Pneumonic Plague – Sep-94 (1)

2.8

-0.7

3.9

SARS – Apr-03 (2)

5.7

9.7

19.4

Avian Flu – Jun-06 (3)

0.6

4.5

13.2

Dengue Fever – Sep-06 (4)

1.2

7.5

10.4

Swine Flu – Apr-09 (5)

9.1

17.8

25.2

Cholera Outbreak – Nov-10 (6)

7.4

13.6

14.8

MERS – May-13 (7)

-2.5

0.5

11.6

Ebola – Mar-14 (8)

1.0

4.9

2.6

Measles/Rubeola Dec-15 (9)

-1.8

2.3

2.6

Zika – Jan-16 (10)

-0.7

7.7

11.6

Ebola – Oct-18 (11)

1.1

0.7

8.8

Measles – Jun-19 (12)

0.5

0.5

9.1

Average

2.0

5.8

11.1

 

Chart 4
Source: Bloomberg, Fidelity International, February 2020.

 

What to do next?

Since you can’t time the market, the best thing to do is to reach out to your financial advisor and talk about what is right for your portfolio.

Download the PDF pdf

 



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