29 reasons why not to invest

Independent Pilots Financial Services is part of the Benchmark Capital Group, backed by FTSE 100 company Schroders. Our investment committee often draws upon Schroders vast resources. This piece is written by one of their investment writers.

Wars, disasters, economic strife and political instability have been persistent themes over the last three decades and they can affect people’s attitude towards investing.

In many cases they make an already tough decision to part with your money and invest even harder, leading some to not invest at all. Behavioural scientists have a name for this: loss aversion. They estimate that the psychological pain of losing is about twice as powerful as the pleasure of gaining, hence why some people shy from the risks involved with investing.

Yet as Schroders’ research shows, staying out of the stock market over the last 30 years could have proven costly.

The eroding effects of inflation and historically low interest rates would have eaten away at the value of your money if you decided not to invest. While investing in the stock market carries greater risks [the possibility of your losing all the money you have invested] and volatility [the value of the money you have invested going up and down] it could have boosted your returns.

Of course choosing to invest depends on your personal circumstances and if you are unsure as to the suitability of any investment speak to a financial adviser.

Schroders research found, after adjusting for the effects of inflation:

These figures are not adjusted to include any account charges or investment fees.

The chart below illustrates the change in real value each year of £1,000 invested in UK stocks, a UK bank account or left under your bed.

Please remember that past performance is not a guide to future performance. Investing in one geographical region [UK equites] may result in large changes to the value to your investment, which may adversely impact the performance.

In some circumstances, up to £85,000 in a UK bank account is protected by the Financial Compensation Services Scheme.


This material is not intended to provide advice of any kind. Information herein is believed to be reliable but Schroders does not warrant its completeness or accuracy.
Source: Schroders. Refinitiv data for The FTSE All-Share Index correct as at 19 November 2018.

The last 30 years have included some of the biggest stock market crashes in history.

In 2001, the FTSE All-Share index fell by 13%. It was in the wake of the bursting of the dotcom bubble at the end of 1990s, when highly-rated technology stocks were sold off. But it also coincided with the devastating attacks on the World Trade Centre in New York in September. The period also saw a global economic slump, although the UK managed to avoid recession. The FTSE All Share index was down 22% in the year to the end of 2002.
The global financial crisis of 2008, which began with the gradual collapse of the housing market in the US the year before, led to the worst global recession since the 1930s. In the year to the end of 2008 the FTSE All-Share was down 30%, its worst annual performance since 1989.

The table below illustrates how your investment returns could build up year by year between 1989 and 2017 and shows the damaging effect inflation can have on your wealth. It also shows global events that investors could have used as excuses not to invest in any of those given years.

Please remember that past performance is not a guide to future performance and may not be repeated.
Source: Schroders. Refinitiv data for the FTSE All Share total return index, which includes dividends. Inflation numbers supplied by the Bank of England. Savings data from Building Societies Association and http://www.swanlowpark.co.uk/savings-interest-data.


Please remember that past performance is not a guide to future performance and may not be repeated.
Source: Schroders. Refinitiv data for the FTSE All Share total return index, which includes dividends. Inflation numbers supplied by the Bank of England. Savings data from Building Societies Association and http://www.swanlowpark.co.uk/savings-interest-data.

Nick Kirrage, a fund manager and author on the Value Perspective investment blog, has written often about the danger fear can play.

“People can lose touch with just how bad things have looked and been in the past,” he said. “That can lead to them taking – or failing to take – actions that can harm their personal wealth for decades to come.

“This data shows that investors who had instead opted to stay in cash would have seen their savings destroyed by inflation during a period when the stock market rallied. Quite frankly, there’s many other periods of the last century which offer the same conclusion. Even the Second World War offer decent stock market returns in the US and UK.

“The reality is that there is no ‘perfect’ time to put money into the stock market. If you are holding out for one, you are going to remain in cash forever and, over the longer term, you are likely to be materially worse off as a result.”

The opinions included above should not be relied upon and should not be construe as advice and/or a recommendation. Past performance cannot be relied upon as a guide to the future performance and the value of your money may fall when invested.


Important Information: The views and opinions contained herein are those of the authors of 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. The material 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 guide to future performance and may not be repeated. The value of investments and the income from them may go down as well as up and investors may not get back the amounts originally invested. 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. Reliance should not be placed on the views and information in this document when taking individual investment and/or strategic decisions. 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. FTSE: FTSE International Limited (‘FTSE’) © FTSE 2016. ‘FTSE®’ is a trade mark of London Stock Exchange Plc and The Financial Times Limited and is used by FTSE International Limited under licence. All rights in the FTSE indices and / or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent. Regions/sectors shown for illustrative purposes only and should not be viewed as a recommendation to buy/sell. 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 Benchmark Capital, Sussex House, North Street, Horsham, RH12 1RQ. Registered No. 09404621 England. Authorised and regulated by the Financial Conduct Authority.

Which stock markets look ‘cheap’ as we head into 2019?

2018 was a rumbustious year for stock markets, with things really coming to the fore in the latter stages. With investors having grown accustomed to an unusual calm over recent years, volatility was back with a bang.

However, as the dust settles, there is a silver lining. Even before the fourth quarter downturn, markets had been cheapening in valuation terms.

Improving fundamentals were behind this shift. Profit growth for 2018 is projected to have been a hefty 24% for the US market, although this is partly down to the Trump administration’s tax reductions.

UK and emerging markets are also both forecast to deliver double-digit earnings growth, while Europe is around mid-single digit levels.

Japan is bringing up the rear with only 3% earnings growth, but it saw its fair share of weather-related troubles in 2018.

Even if share prices had ended the year where they started, investors would now be in a stronger position from a fundamental standpoint. In simple terms, they would now benefit from more earnings for each dollar that they have invested.

However, recent events mean that share prices weren’t flat over 2018, they fell sharply. That means that not only are earnings higher, but prices are lower. This double-whammy has pushed popular earnings-based measures of stock market valuations close to their cheapest levels for many years.

Relative to consensus earnings forecasts for the next 12 months, US, UK, European and emerging market equities are valued at close to their cheapest levels for four to six years. There is a similar story when prices are compared to the previous 12 months’ earnings. Japanese equities have not been cheaper on either basis since the depths of the financial crisis.

Other valuation measures have also cheapened – cyclically-adjusted price earnings and price-to-book multiples have fallen and dividends yields risen. The UK dividend yield has even risen above 5%. If you exclude the financial crisis, this is its highest level for over 25 years.

The consequence of these moves is that, from a valuation perspective stock markets are now a much more appealing prospect than before. Whereas, as we entered 2018 our valuation table was a sea of (expensive) red, it is now a field of (cheap) green. With the exception of the US, all other markets are now outright cheap on most valuation measures. Even the US is less expensive than it was. (All of the valuations measures are explained briefly below).

While there are undoubtedly short-term challenges facing markets, not least geopolitics, tightening monetary policy and slowing global growth, investing when valuations are cheap is a sound long term strategy. Valuations are the single biggest determinant of long term returns, although their uselessness at predicting short term market movements should always be borne in mind.

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