Distribution of Equity Returns (Pt2 – Investing after Market Falls)

March 31st, 2016, by Alex Dean-Austin

In the first article of this series we looked at the returns produced by the UK market over the past 25 years and investigated the likelihood of an investor achieving a positive return over 1 – 10 year holding periods. We found evidence that holding shares in UK companies for longer periods increases the probability of an investor receiving a positive real return. Over the longer term increasing the holding period from 5 to 7 years increased the likelihood of producing a positive real return from 75% to 95% and reduced the probability of incurring a loss from 15% to 1-2%.

As we have been reminded over the past 12 months equity markets are inherently volatile and over the short term the value of your investments can fall sharply. From its peak in April 2015 (7,122) to the recent low of February 2016 (5,499) the FTSE 100 index fell by over 20%. These falls are unusual but not uncommon. From January 2000 to March 2003 the FTSE 100 fell by over 50% in capital terms and from June 2007 to March 2009 it fell by 45%.

This article investigates the returns achieved if investors choose to invest or sell after a market fall.

Read the full article here