In the past four weeks, the stock market has known only one direction – downwards. And as always with such crises and crashes, there are people who will eventually issue the slogan: This is the right time to buy shares. Indeed, buying such securities is now 30 percent cheaper than it was a month ago – as of last Thursday.
This applies to shares in the MSCI World, the world’s most important stock index. With the Dax, the discount would even be 40 percent. If the sofa in the furniture store were lowered by 30 to 40 percent, you would also strike.
Okay, the sofa comparison is limping. The sofa is worn out after 15 years, hopefully not the depot. Instead, I did something different, namely to look up what happened earlier in situations where a smart, mixed international equity portfolio fell 30 percent below its peak. I took the MSCI World as a synonym for such a depot – where that was already possible. There is as Data series since 1969. And I always use values converted into euros.
Looking back, I found three interesting times. 1973, the years 2000/2001 and the financial crisis 2008/2009.
In 1973 the oil crisis shook the markets. The Arab oil countries cut their crude oil production, the price skyrocketed, the stock markets collapsed. From its peak in December 1973, the stock markets went down for a year. The Watergate scandal in the USA didn’t help either. The markets then reached their low point in December 1974 – with a decrease of more than 50 percent. And it actually took more than six years until February 1981 to make up for all of these losses.
The second slump came with the bursting of the dotcom bubble in 2000. The early internet companies burned a lot of money and did not become profitable quickly enough. After the long hype of the “new market” the stock market suddenly lost patience – and from autumn 2000 things went down dramatically. The September 11, 2001 attacks on the World Trade Center and Pentagon deepened the crisis. Here, too, it took a long time to reach the lowest point: it wasn’t until spring 2003 that the time had come: more than 50 percent below the high point.
From a euro investor’s perspective, this has not been achieved for more than a decade. In autumn 2007, prices on the world’s stock exchanges finally approached this peak again, only to crash and crash again very quickly in the financial crisis. The second low point was reached in spring 2009. And it took until 2014 to crawl out of this valley and then reach a new high compared to the 2000 level from the perspective of a euro investor.
On the other hand: Since 2009, the trend has only been upwards. Anyone who bought in summer 2009 was able to triple the amount invested in February 2020.
What does this teach us? It can get pretty bad for equity investors and it can take a long time. But in the end the market has always come back in the past. And, as our financial tip analyzes show, on average across all 15 annual periods, investors have seen a return of eight percent a year on the money invested.
I read two messages from it:
First, in principle it is a good idea to invest some of your money sensibly on the stock market over a long period of time. The returns were mostly good in the past, you could even avoid losses.
Second, if I don’t buy at the peak of the market, but far below, as is currently the case, my chances of a decent return improve and the risk of staying in the loss zone for a long time is reduced. And both effects are significant.
How neatly the yield improves and how much the loss zone shortens, of course, you cannot know. But since you are currently shopping at least 30 percent below the highs, you naturally have an advantage, even if the low has not yet been reached. After 15 years, the annual return would be mathematically 2.4 percent higher and the loss phase would certainly be shortened by years.
So then: go, get in?
Well. The past is no guarantee of the future. And we have never had a phenomenon like the Corona crisis and the reaction of states and companies to it in the global economy.
Even if you are hard-boiled, you should still sleep over it. I personally would wait again with larger sums. Prices have not fallen as quickly as this time in any of the past crises. In a few weeks they will be smarter.
Either way, I would only have part of the money that I can actually spare for 15 years on one Deposit MSCI World index funds – for example a third. And wait with the other parts again for months, i.e. the second third in early August and the third third in November, for example. That gives me time to get used to the situation and takes into account another message of the numbers. In the past, the market has been much slower to rise than to fall. I therefore have a little bit of time, even if the low point should soon be reached now.
But it can also turn out to be wrong afterwards. Nobody can know that.
For savings plan savers who are just starting out, the whole problem is much smaller anyway. You are currently investing little money in the plan, no matter how the market behaves. Your risk is small and in the long term, the chances are high. For savings plan savers with a current plan, the current situation is a good reason to increase the rates.