In order to earn good investment returns over a long time horizon, we must accept that the investment market will at times give us low, or even negative returns, as we are experiencing now. This is an uncomfortable but natural function of the market.
When investment markets perform badly, it is important to recognise the opportunities that this provides for long-term investors, like most of the Fund’s members:
- When investment returns are negative, it means that the prices of the investments have fallen.
- The Fund’s asset managers use this opportunity to buy investments that are cheaper than normal.
- When the cycle eventually turns, prices will increase again, resulting in good returns on those assets that were bought at cheap prices.
However, it is impossible to know when the cycle will turn. It could take weeks, months or even years, depending on underlying factors.
To reap the benefits of this natural cycle you must stay invested throughout the cycle. You need to experience the temporary pain of the fall in investment prices, in order to reap the rewards of the rise in the prices that will follow. Avoid acting out of fear when markets go down, or you may end up experiencing the fall in prices but never the eventual rise.
You will benefit from PERIODS OF STRONG INVESTMENT RETURNS IN THE FUTURE, PROVIDED that YOU keep your savings invested.