Recent volatility may have rattled markets around the globe, but 30 years of index data shows that looking beyond the short term can have its rewards.
The newly-released Vanguard 2016 Index Chart tracks 30 years of performance across major asset classes to demonstrate the power of compounding returns over a long term period. Data to the end of the 2015/16 financial year puts losses amid the Global Financial Crisis from 2008, the Tech Wreck from 2000 and the short term reaction to the UK ‘Brexit’ vote in late June into perspective.
From peak to trough during recent volatility surrounding the Brexit vote, the MSCI World ex-Australia index fell 4.44 per cent, compared to an annual gain of seven per cent on average for the index over 30 years.
By comparison, the Global Financial Crisis saw the S&P/ASX 300 fall by 50.26 per cent, and the Tech Wreck in 2000-2003 saw the US S&P 500 fall 50.37 per cent, as examples of how other significant market events have played out.
Vanguard Australia Head of Market Strategy, Robin Bowerman, said the global media headlines and commentary around Brexit would have been difficult for investors to ignore, but keeping a long term view was essential to achieving investment goals.
“We have been in a fragile market environment since the second half of 2015, and the recent volatility surrounding Brexit generated a lot of market noise. That can be hugely distracting for investors, who are generally better served by sticking to long term, goal-oriented asset allocations rather than making decisions that are reactive to market movements,” Mr Bowerman said.
“The recent referendum vote in the UK may prove to have medium to longer term implications for the European economy and global markets, and no doubt more evidence of those effects will emerge as negotiations around the issue unfold. Although we can expect some further ups-and-downs on the road ahead, the relatively rapid stabilisation of many markets after the initial Brexit news highlights the value of resisting the urge to be spontaneous when market shocks occur.”
To read more on this year’s Index Chart, please view the media release from Vanguard online.
An interactive version of the Vanguard 2016 Index Chart is available online.
