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How stock markets fall, but nearly always bounce back
It's easy for investors to be discouraged by stock market news. Here's a chart to help you block out the ‘noise’ and hold on when others might be selling.
Just because stock markets are volatile – or even sometimes seemingly in free-fall – it doesn’t mean investors should panic.
That’s the message from JP Morgan Asset Management, which has produced this chart showing that even in years where shares (represented by the FTSE All Share) may at some point fall quite sharply (represented by ‘drawdown’), more often than not they’ll end the year higher.
Annual returns and intra-year declines (source: JPM Asset Management): Click to enlarge
The chart (click to enlarge it) shows that despite average intra-year drops of 16.2%, annual returns are positive in 20 out of 27 years.
Of course there are bad years – such as 2002 and 2008 in the chart. And of course fund management groups aren’t known for telling people to stick their money in cash.
But the oft-repeated maxim, to look through the ‘noise’, is an important one for investors dealing with a US government shutdown, Italian political crisis – or whatever else is the flavour of the day.
The latest concerns in markets, mostly political, have knocked 1.2% off the FTSE All Share over the past five days. You might even deem it a buying opportunity.
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