Context is an important tool when it comes to investing.
Last Updated: 25th March
All investors around the world will be feeling the emotional pressures of the recent rapid equity market falls, either because they can remember previous falls and times of uncertainty, such as the Global Financial Crisis (2007-2009), or as younger investors, they have not yet experienced material market falls. We clearly do not have a crystal ball to see into the future, but the global equity market fall we have seen since February, of 20% or so at the time of writing – sits comfortably within previous falls since 1970.
In terms of expected ranges of outcomes, we generally estimate that 95% of the time annual equity market returns should sit within an approximate range of +45% to -35%. Outliers do exist beyond these limits. Clearly this is not a comfortable range for the vast majority of clients – which is why only our most aggressive portfolio (boosst 100) holds global equities with no defensive assets whatsoever to stabilise the investment journey.
We will only have made boosst 100 available to you, if:
- You have a very long time horizon until you need to access your savings
- We have assessed your tolerance to risk and the outcome is that you are comfortable to see large market movements both up and down
- We feel that taking this level of risk is suitable for you
boosst Portfolios use ‘Growth’ and ‘Defensive’ assets
‘Growth Assets‘ are globally diverse equities and include some global property exposure. These assets drive returns for investors but are also susceptible to market falls. They have been impacted by the current market fall.
‘Defensive Assets‘ are cash and globally diverse bonds, which are simply loans to governments and companies around the world. These defensive assets are substantially more stable than equities and we intentionally choose bond funds which will provide us with very little return in a rising market but provide stability in a market fall. High quality Bond funds have fallen slightly, but nowhere near as much as equities. They have done their job.
This bar chart shows the split between ‘Growth Assets‘ and ‘Defensive Assets‘ for our boosst Portfolios.
Using history for context, are boosst Portfolios doing what we expect them to?
The most commonly used portfolio across all boosst clients is the boosst 60 portfolio. This holds 60% ‘Growth Assets‘ and 40% ‘Defensive Assets‘. Existing clients will be familiar with the graph below, which considers the range of annual returns, and how this range tightens when an investment is held for a longer time period. The boosst 60 portfolio has fallen by 10% over the last 12 month period (since March 23rd 2019), which is comfortably within the ‘worst case’ outcome for a ‘1 Year’ holding period, of -22%.
This graph is composed of historical data since 1989 and the figures shown are after deducting costs of investment and inflation. This reaffirms our view that five years+ is a sensible timescale and anything less is more of a gamble than an informed investment decision.
Ignore the FTSE 100
The UK media tend to fixate on the FTSE 100 but this is not an accurate reflection of how your boosst portfolio is performing. The more Defensive Assets you hold, the safer you are from sudden market falls. It isn’t helpful to focus on, or follow, the movements of a volatile index like the FTSE 100.
For some comfort, over the last 12 month period from 24th March 2019 to 25th March 2020:
- FTSE 100, -20.9%
- boosst 100, -16.9%
- boosst 80, -13.7%
- boosst 60, -10.4%
- boosst 40, – 7.3%
- boosst 20, – 4.2%
- boosst 0, – 1.1%
These uncertain times have not driven markets to behave unusually or differently to how they have in the past. Without a crystal ball we do not know how long this uncertainty will continue for but we do remain confident that a market recovery will follow this fall, as it always has in the past.
As a closing thought, we want to share this sketch by Carl Richards, which reminds us to not worry about the day-to-day fluctuations of investments – but to focus on the long term journey.
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