IN THE BACK
/ PLATFORMS & PENSIONS /
TIMING CRISIS
John Blowers has some words of warning for anyone who may be
tempted to call the top of the market
A
S THE RECORD
BULL-RUN
CONTINUES APACE
and stock markets
achieve fresh all-time
highs around the globe, it is time
for the doomsayers to predict the
next crash.
And they will (at some point)
be right, because the market is
cyclical and goes down as well as
up. In fact, it has historically been
a rollercoaster-ride for investors
and that’s the way you should
view the journey.
So, should investors bank the
gains they have made, move
into cash and wait for the next
correction, then pile back in?
We have had almost 10 years of
growth since the financial crisis in
2008, where markets plummeted
50 per cent in just a few weeks.
Events such as this one
are terrifying for investors,
particularly those approaching
retirement who will see their life
savings drop at the very point they
need to access them.
CASHING IN
The point to make here is that
with the new pension freedoms
and drawdown broadly replacing
annuities, there is no longer any
hard “cashing in” date at retirement.
If there happens to be a crash
the day before your planned
retirement date, then that isn’t
helpful, but it’s not as if you have
to liquidise your investments at
this point and crystallise the loss.
Historically, markets recover over
time and it’s best to resist selling
anything until your investments
come back into profit.
More recently, markets have
quickly recovered any losses
sustained after sharp falls.
There is much speculation
about whether professional
investors, such as fund managers,
can spot an impending market
crash or euphemistically named
“market correction”. And if the
professionals can, could private
investors follow suit?
Wouldn’t it be great if we all
cashed in our investments at the
very top of the market and then
watched values tumble, only to
reinvest at the bottom?
NIGH ON IMPOSSIBLE
Boom! You’d make a fortune, as you
would have doubled your holdings
in a few short months before
watching with glee as your now
larger shareholding surfed on the
wave of the next bull run.
Surely, this is what we pay for
expert fund managers to do on our
behalf, but the reality is that timing
the market, even for seasoned
professionals, is nigh on impossible.
Although corrections are cyclical,
they happen for different reasons,
whether event-driven (wars or
natural disasters), macro-economic,
or simply because markets get
overvalued (as in the case of the
dotcom bubble). Therefore, the
market is unpredictable.
Most of the reasons that cause a
crash or correction are easier to spot
with the benefit of hindsight, but
hard to understand at the time.
The top of the market is not like
GAINS AND LOSSES DURING BULL AND BEAR MARKETS
Event
Date
FTSE 100 (price only)
Drop or rise
Duration
Dotcom “bubble” 1-Sep 2000 6,795 - -
Dotcom crash bear-run 7-Mar 2003 3,491 -49% 30 months
Post dotcom bull-run 12-Oct 2007 6,730 +92% 55 months
Financial crisis 6-Mar 2009 3,530 -48% 17 months
Post-crash bull-run 29-Dec 2017 7,687 +117% 106 months
Source: Google Finance
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