Im Fokus - 2019

29 reasons not to invest in the global stock market

Over the past three decades there have been plenty of shocks to dissuade people from investing. Our data shows what happened after each event.

24.01.2019

David Brett

David Brett

Redakteur

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.

Yet as Schroders’ research shows, 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.

Schroders 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.

How the value of $1,000 could have grown (and shrunk) since 1989

 

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.

A brief history of stock market crashes since 1989

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.

Returns on $1,000 year by year since 1989

Year A reason not to invest? MSCI World index level - end of year (EoY) MSCI World index year-on-year % change Average inflation rate Value of $1,000 invested in MSCI World index (EoY) Value of $1,000 not invested or saved (EoY)
1989 Junk bond crisis 1206 17.2% 6.8% $1,104 $932
1990 Recession 1007 -16.5% 8.1% $833 $857
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
1994 Balkan War 1484 5.6% 10.3% $892 $603
1995 Tequila Crisis 1801 21.3% 9.2% $1,000 $548
1996 Fed chairman questions stock market valuation 2053 14.0% 6.6% $1,075 $512
1997 Asian crisis 2386 16.2% 5.5% $1,190 $484
1998 Russian financial crisis 2977 24.8% 5.1% $1,424 $459
1999 Argentine financial crisis 3732 25.3% 3.2% $1,739 $444
2000 Dotcom bubble 3250 -12.9% 3.5% $1,453 $429
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
2006 Housing bubble 4466 20.7% 4.3% $1,615 $344
2007 Sub-prime mortgage crisis 4894 9.6%  4.8%  $1,692  $327 
2008 Global financial crisis 2920  -40.3%  9.0%  $858  $298 
2009 Global recession  3819  30.8%  2.9%  $1,097  $289 
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. Global 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.”

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.

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