Over the past three decades there have been plenty of shocks to dissuade people from investing. Our data shows what happened after each event.
Wars, disasters, economic strife and political instability have been persistent themes over the last three decades. Such events can affect people’s attitude towards investing.
In many cases they make an already tough decision to invest even harder, leading some to not invest at all. Behavioural scientists have a name for this: loss aversion. They estimate that the psychological pain of losing is about twice as powerful as the pleasure of gaining. Hence some people shy away from the risks involved with investing.
Staying out of the stock market over the last 30 years could have proven costly. The eroding effects of inflation and historically low interest rates would have eaten away at the value of your money if you had decided not to invest. While participating in the stock market carried risks [the possibility of your losing all the money you have invested], it also had the potential to boost your returns.
Our research found, after adjusting for the effects of inflation:
- $1,000 hidden under the mattress at the start of 1989 would now be worth $232 due to the effects of inflation – annual growth of -5.1%
- $1,000 invested in the MSCI World index, a measure of global stock markets, at the start of 1989, with all income reinvested, would now be worth $1,983 – annual growth of 2.5%
The chart below illustrates the change in real value each year of $1,000 invested in global stocks or left under your bed.
Please remember that past performance is not a guide to future returns and your money is at risk whenever you invest.
This material is not intended to provide advice of any kind. Information herein is believed to be reliable but Schroders does not warrant its completeness or accuracy. Past performance is not a guide to future returns and may not be repeated.Source: Schroders. Refinitiv data for MSCI World Index, priced in US dollars, correct as at 3 January 2019. Global inflation data supplied by the World Bank.
The last 30 years have included some of the biggest stock market crashes in history. In 1990, global stocks, in particular Japanese stocks, plunged as the Japanese banking crisis erupted. The MSCI World index fell by 16.5%. It was a period which also coincided with a global recession.
Stocks recovered later in the decade but the rally came to an abrupt end at the turn of the millennium. In three consecutive years, from 2000 to 2002, the MSCI World Index fell in value.
The bursting of the dotcom bubble, in 2000, when highly-rated technology stocks were sold off, kick-started a grim period for global equities. In 2001 there was the devastating attack on the World Trade Centre in New York and a global economic slump followed in 2002. The MSCI World index fell 41.5% between 31 December 1999 and 31 December 2002.
The global financial crisis of 2008, which began with the gradual collapse of the housing market in the US the year before, led to the deepest global recession since the 1930s. In the year to the end of 2008 the MSCI World index was down 40.3%, its worst annual performance since 1989.
The table below illustrates how your investment returns could have built up year by year between 1989 and 2017. It shows the damaging effect inflation can have on your wealth if you don’t put your money to work. It also shows the excuses investors could have used not to invest in any of those given years, offered from a global perspective.
A brief history of stock market crashes since 1989
|Year||A reason to not invest?||MSCI World Index end of year (EoY) level||% change of the MSCI World index year-on-year||Average Inflation rate||EoY value of $1,000 invested in global stocks||EoY value of $1,000 not saved or invested|
|1989||Junk bond crisis||1206||17.2%||6.8%||$1,104||$932|
|1991||India economic crisis||1197||19.0%||9.0%||$916||$780|
|1992||UK pulls out of the exchange rate mechanism (ERM)||1142||-4.7%||7.5%||$804||$721|
|1993||Swedish banking crisis||1406||23.1%||6.8%||$936||$673|
|1996||Fed chairman question stock market valuation||2053||14.0%||6.6%||$1,075||$512|
|1998||Russian financial crisis||2977||24.8%||5.1%||$1,424||$459|
|1999||Argentine economic crisis||3732||25.3%||3.2%||$1,739||$444|
|2001||Twin towers terrorist attack||2713||-16.5%||4.0%||$1,155||$412|
|2002||Stock market crash||2183||-19.5%||2.9%||$896||$400|
|2003||War in Iraq||2919||33.8%||3.0%||$1,171||$388|
|2004||Terrorist attack in Madrid||3365||15.2%||3.4%||$1,310||$374|
|2005||London bombings/Hurricane Katrina||3702||10.0%||4.1%||$1,388||$359|
|2007||Sub-prime mortgage crisis||4894||9.6%||4.8%||$1,692||$327|
|2008||Global financial crisis||2920||-40.3%||9.0%||$858||$298|
|2010||European sovereign debt crisis||4290||12.3%||3.4%||$1,196||$280|
|2011||Greek debt crisis – bailout||4075||-5.0%||4.8%||$1,078||$266|
|2012||US heads towards the fiscal cliff (spending cuts and tax rises)||4749||16.5%||3.7%||$1,216||$256|
|2013||Russia invades Ukraine||6048||27.4%||2.6%||$1,517||$250|
|2014||Brazilian economic crisis||6381||5.5%||2.4%||$1,565||$244|
|2015||China stock market crash||6361||-0.3%||1.4%||$1,538||$240|
|2016||UK votes to leave the European Union||6879||8.2%||1.5%||$1,640||$237|
|2017||Rise of populist vote||8466||23.1%||2.2%||$1,983||$232|
Please remember that past performance is not a guide to future performance and may not be repeated.
Source: Schroders. Refinitiv data for the MSCI World total return index, which includes dividends, priced in US dollars, correct as at 3 January 2019. Inflation data provided by the World Bank.
Nick Kirrage, a fund manager and author of the Value Perspective investment blog, has written often about the danger fear can play.
“People can lose touch with just how bad things have looked and been in the past,” he said. “That can lead to them taking – or failing to take – actions that can harm their personal wealth for decades to come.
“This data shows that investors who had instead opted to stay in cash would have seen their savings destroyed by inflation during a period when the stock market rallied. Quite frankly, there’s many other periods of the last century which offer the same conclusion. Even the Second World War offered decent stock market returns in the US and UK.
“The reality is that there is no ‘perfect’ time to put money into the stock market. If you are holding out for one, you are going to remain in cash forever and, over the longer term, you are likely to be materially worse off as a result.”
Author: David Brett, Investment Writer at Schroders and Grace Canavan, Head of Intermediary Business Development, Ireland. Website www.Schroders.com and contact number +353 (0) 85 254 9839.
The opinions included above should not be relied upon and should not be construe as advice and/or a recommendation. Past performance cannot be relied upon as a guide to the future and the value of your money may fall when invested.