Global Investor Study
Only a fifth of investors held their nerve during 2018 stock market tumble
2018 was a tough year for investors with sharp falls in global stock markets testing the nerve of investors. New global research shows that only 18% of investors said they stuck with their investment plans during the volatile three-month period at the end of 2018.
The findings were part of Schroders Global Investor Study 2019 which measured the views of more than 25,000 investors across 32 countries.
A majority (70%) of investors said they made some changes to their portfolio risk profile during that period. Just over a third (35%) took more risk, the majority, 56%, moved into lower risk investments (36%) or cash (20%). 9% made changes to their portfolios but kept their risk profile the same.
The chart below show the proportion of those who made changes to their investments in direct response to the period of market volatility, during the final three months of 2018 (re-percentaged to sum to 100%)
Source: Schroders Global Investor Study 2019 : In the final three months of 2018, the MSCI World index of global equities fell sharply amid concerns for the global economy. What changes did you make to your investment portfolio in direct response to this period of market volatility?
But despite the tinkering, many investors expressed frustration with how their portfolio had performed.
More than half of investors (51%) said they have not achieved what they wanted with their investments over the past five years, and many attribute their own action or inaction as the main cause of this failure.
The uncertainty during the period in question was particularly acute. Global stocks suffered their worst quarterly fall in seven years at the end of 2018 amid global economic concerns, driven by a worsening trade war between the US and China. The MSCI World index fell 13.9%, the 11th worst quarterly fall since 1970.
Source: Schroders. Refinitiv data for MSCI World price index correct as at 12 June 2019.
Claire Walsh, Schroders Personal Finance Director, said: “No-one likes to lose money so it is not surprising that when markets go down investors feel nervous. Research has repeatedly shown that investors feel the pain of loss far more strongly than the pleasure of gains. That can affect decision making.
“As our study shows even just three months of rocky markets led many investors to make changes to what should have been long-term investment plans. That could potentially lead them into making classic investment mistakes. These include selling at the bottom when things feel bad or moving their money into cash in an attempt to protect their wealth, but then leaving it there too long where it can be eaten away by inflation over time.
“These psychological drivers that the investment industry terms as behavioural finance. Ultimately, it is difficult to predict markets will do, but being more aware of the biases that might affect your decisions is a good way to help preserve your wealth.”
The difficulty with timing the market
The Global Investor Study findings suggest investors are attempting to time the market. Buying low and selling high is every investor’s goal. However, timing the market precisely is notoriously difficult, if not impossible.
Previous research undertaken by Schroders shows how costly it can be when the timing is wrong. For instance, If in 2003 you had invested $1,000 in the MSCI World and left the investment alone for the next 15 years it would now be worth $4,211. (Bear in mind, of course, that past performance is no guarantee of future returns).
However, if you had tried to time your entry in and out of the market during that period and missed out on the index’s 30 best days the same investment would now be worth $1,268, or $2,943 less.
Investors stay invested for an average of 2.6 years
Schroders Global Investor Study 2019 also revealed investors tend to take a relatively short term view. On average, people stay invested for 2.6 years before moving their money elsewhere or cashing in.
Source: Schroders Global Investor Study 2019 : Excluding any pensions or property investments you might have, on average, once you have put money into an investment product, how long do you stay invested (before moving elsewhere/cashing it in)?
Just 13% of investors said they stayed invested for the five-year minimum often recommended by financial advisers while 41% said they stay invested for a year or less.
“Generally speaking, the longer you invest for, the longer you have to ride out any bumps along the way, which is why it is suggested you invest for a minimum five years,” said Walsh.
“It is slightly concerning that such a large proportion of investors don’t do it. People do have different investment goals like buying a house or investing for retirement. However, if your goals are truly short-term, like perhaps buying a car, then maybe saving in deposit accounts is a better option.”
Schroders commissioned Research Plus Ltd to conduct an independent online survey of 25,743 investors in 32 countries throughout the world, with fieldwork held between 4th April – 7th May 2019. This research defines ‘investors’ as people who will be investing at least €10,000 (or the equivalent) in the next 12 months and who have made changes to their investments within the last 10 years; these individuals represent the views of investors in each country included in the survey.
Important Information: This communication is marketing material. The views and opinions contained herein are those of the author(s) on this page, and may not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds. This material is intended to be for information purposes only and is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. It is not intended to provide and should not be relied on for accounting, legal or tax advice, or investment recommendations. Reliance should not be placed on the views and information in this document when taking individual investment and/or strategic decisions. Past performance is not a reliable indicator of future results. The value of an investment can go down as well as up and is not guaranteed. All investments involve risks including the risk of possible loss of principal. Information herein is believed to be reliable but Schroders does not warrant its completeness or accuracy. Some information quoted was obtained from external sources we consider to be reliable. No responsibility can be accepted for errors of fact obtained from third parties, and this data may change with market conditions. This does not exclude any duty or liability that Schroders has to its customers under any regulatory system. Regions/ sectors shown for illustrative purposes only and should not be viewed as a recommendation to buy/sell. The opinions in this material include some forecasted views. We believe we are basing our expectations and beliefs on reasonable assumptions within the bounds of what we currently know. However, there is no guarantee than any forecasts or opinions will be realised. These views and opinions may change. To the extent that you are in North America, this content is issued by Schroder Investment Management North America Inc., an indirect wholly owned subsidiary of Schroders plc and SEC registered adviser providing asset management products and services to clients in the US and Canada. For all other users, this content is issued by Schroder Investment Management Limited, 1 London Wall Place, London EC2Y 5AU. Registered No. 1893220 England. Authorised and regulated by the Financial Conduct Authority.