Why patience has been the most rewarding strategy
We all like to think we can time our entry and exit points in the market, but the last ten years or so clearly demonstrate you never know what is around the corner. Since 2012, we have witnessed the Taper Tantrum of 2013, the shock of the 2016 Brexit Referendum and its political ramifications, an over-enthusiastic rate-hiking policy by the US Federal Reserve in 2018, and, of course, the pandemic catastrophe of 2020 and 2021. Through all of it, staying invested has proved far more rewarding than trying to trade around the volatility.
80% growth and first-quartile performance over nine years
During these challenging times our low-medium risk income portfolio has gained 80%, producing annualised equivalent returns of 6.75% per annum over the period from July 2012 to June 2021. This is measured on a bid-to-bid basis with income reinvested and net of investment fund managers' charges. The portfolio has outperformed its benchmark by a substantial 24% and in doing so has achieved first-quartile performance.
These figures span a period that included several episodes that felt deeply uncomfortable at the time. The Taper Tantrum sent bond markets into a sharp sell-off. The Brexit vote triggered an immediate 8% fall in sterling and widespread predictions of recession. The Federal Reserve's rate-hiking cycle in 2018 pushed global equities into a near bear market. And the pandemic crash of early 2020 saw markets fall by a third in a matter of weeks. In every case, investors who kept their nerve were rewarded by the subsequent recovery.
You would need to be right 82% of the time to beat buy-and-hold
As the eminent economist William Sharpe once demonstrated through historical analysis, market-timing traders had to be right an incredible 82% of the time to match the returns of buy-and-hold investors. That is an extraordinarily high bar, and one that very few professional traders, let alone private investors, can consistently clear.
Last year, markets looked pretty frightening at times, partly because sections of the media were whipping up a frenzy of apocalyptic headlines rather than using reasoned reporting. Investors who kept their nerve and retained their faith were rewarded with the subsequent market bounce that followed. The lesson is not that markets never fall, but that recoveries have reliably followed every downturn, and that being out of the market when those recoveries begin is the surest way to damage long-term returns.
Cash rates offer little alternative
While we cannot be certain of what is around the corner, with UK interest rates offering 1% per annum at best on a two-year fixed deposit, we can be certain of the value in long-term investment. Cash may feel safe, but in an environment where even the best deposit rates sit well below the rate of inflation, holding cash for the long term guarantees a loss in real purchasing power.
The combination of near-zero deposit rates and rising inflation means that even cautious investors face a choice: accept the certainty of falling behind, or accept some short-term volatility in exchange for a realistic prospect of growing their wealth over time. History consistently favours the latter approach, provided investors are prepared to stay the course.
A note from the desk
I am pleased to share our monthly update on market events. The overview seeks to summarise market movements together with our views and the rationale for the positioning of investments going forward. As always, should any aspect of this commentary prompt a question, we would welcome the conversation.
Martyn Charlwood · Managing Director
The value of discipline in an uncertain world
Nobody has a crystal ball, and we cannot tell you the perfect time to invest. What we can say with confidence is that the evidence overwhelmingly supports a long-term, disciplined approach. The crises of the last decade, each of which felt uniquely threatening at the time, have all proved to be temporary interruptions in a broader upward trend. The investors who benefited most were those who resisted the temptation to sell at the worst moment and instead maintained their positions through the turbulence.
Looking ahead, the environment remains one in which cash offers very little. UK interest rates on deposit accounts are delivering returns well below inflation, which means that money held in cash is losing its purchasing power in real terms. For investors with a time horizon of five years or more, a well-diversified portfolio of equities, bonds and alternative assets continues to offer the most realistic path to preserving and growing wealth. The key, as always, is patience.
Market-timing traders had to be right an incredible 82% of the time to match the returns of buy-and-hold investors.
The period from 2012 to 2021 has tested the resolve of even the most committed long-term investor. But the results speak clearly: a portfolio that stayed invested through all of it, absorbing the shocks and participating in the recoveries, delivered returns that far exceeded what any reasonable cash alternative could offer. Past performance is not a guide to future performance, but the principle that time in the market matters more than timing the market has been reinforced once again.
Our approach is grounded in the same principles that have delivered these long-term results: broad diversification, a blend of asset types, and the discipline to stay invested through periods of uncertainty.
Buy and hold with conviction
Our track record demonstrates the value of a patient, buy-and-hold approach. We do not attempt to time the market. Instead, we build portfolios designed to compound returns over the long term, adjusting positioning when valuations warrant it rather than in response to short-term noise.
Long-term value over short-term headlines
The crises we have navigated since 2012 all generated alarming headlines, yet each proved temporary. We focus on the underlying fundamentals of the businesses and assets we hold, not on the daily news cycle. This is how a low-medium risk portfolio can achieve first-quartile performance.
Diversification across asset classes
Our portfolios diversify risk by investing across a wide range of assets using actively managed funds with sound investment processes. Holdings in gold and silver, infrastructure, agriculture and absolute return strategies provide additional sources of return and help smooth volatility over time.
Setbacks as opportunities
With UK deposit rates offering just 1% per annum at best, we view market setbacks not as reasons to retreat but as opportunities to invest at more attractive valuations. The evidence of the last decade supports this approach unequivocally.
Important information
This article is a marketing communication intended for general information only. It does not constitute personal advice, a recommendation, or an offer to buy or sell any investment. If you are unsure whether an investment is suitable for your circumstances, please seek personal advice.
Past performance is not a guide to future performance. The value of investments and any income from them can fall as well as rise. Capital values are at risk and not guaranteed. Forecasts and views expressed in this commentary represent our assessment at the time of writing and are subject to change.
To discuss how this commentary applies to your own portfolio, we would welcome a conversation.
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