Investing at Market Peaks
After crashing hard in April (15% – 20%), most global share markets have rebounded even harder, recently hitting new all-time highs. This has left many investors feeling nervous about the potential for a fall.
It is normal to feel nervous about investing when the share market is at an all-time high, however, history suggests that giving in to that feeling (and going to cash) could be harmful for your wealth.
Will market choppiness in 2025 give way to smoother sailing in 2026? There is no way to tell.
Markets typically recover quickly
Share market returns have typically been strongest after sharp declines. The average 12-month return from the US sharemarket (S&P 500) immediately following a 15% or greater decline is approximately 40%. That is why it is often best to remain calm and stay invested.
How often do market corrections of 15% or more in the S&P 500 turn into entrenched bear markets? Turns out, not often. More common are short periods of pullbacks ranging from 5% to 10%. While these may feel unsettling, a drop of 5% occurred twice per year on average, while corrections of 10% or more happened every 18 months on average, from 1950 to 2024.
Bear markets have been relatively short-lived
A long-term focus can help investors put bear markets in perspective. From 1 January 1950 to 31 December 2024, there were 11 periods of 20%-or-greater declines in the US S&P 500. While the average bear market decline of 33% per year might have been painful to endure, missing out on the average bull market’s 265% return could have been far worse.
Bear markets are also typically much shorter than bull markets. Bear periods have averaged 12 months, which can feel like an eternity, but pale in comparison with the 67 months of average bull markets — another reason why trying to time investment decisions is ill-advised.
It is often best to stay invested and avoid knee-jerk reactions to daily market moves.
Finally, at Goldsborough, we’re always focused on building well-diversified portfolios that can weather different types of market environments. As well as investing in shares, our portfolios also invest in Property, Infrastructure and Fixed Interest (Term Deposits, Bonds and Corporate Debt), as well as Cash. This diversification helps smooth returns.
If you would like to discuss further, please call me on 8378 4000.
Boris Pedisic CFP®
Representative (No 301739)
