After a white-knuckle ride on the stock market rollercoaster, I’m glad I stuck around to earn higher returns.
Back in September 2015, I finally plucked up the courage to invest my cash savings in stocks and shares.
Earlier that year, the stock market was flying high – in sharp contrast to the pitiful interest on my savings. I started to investigate learning to invest, ready to take some risk in the hope of making more of my money. With my cash individual savings account (Isa) ear-marked to bolster my pension in retirement, I had a good 20 to 30 years ahead.
Getting started
Then in August stock markets around the world fell sharply. Concerns about economic growth, oil prices, currencies and interest rates combined to send shares shooting downwards.
The headlines about plummeting markets prompted me to open an online trading account. I figured it was a good time to buy investments, when prices were low. I filled in the forms to switch the £28,600 odd in my cash Isa into a stocks and shares version.
I finally clicked the buttons to buy my chosen investment trusts on 25 September 2015, and crossed my fingers for the future.
Dropping into losses
During the first month, the markets rose, and I felt smug about my decision to invest.
Then stock markets started trending downwards.
Rationally, I knew that if I stuck money in stocks and shares, the value might dip in the short term. Rationally, I also knew that over the long term, stocks and shares tend to deliver higher returns than cash savings.
But no-one likes losing money. Discovering in February 2016 that my balance was less than the amount I invested was not a good moment. The warning that ‘investments can fall as well as rise and you may not get back your original investment’ had never seemed so stark.
If I had panicked and sold then, I would have lost more than £1,000. Ouch.
Instead, I comforted myself by checking a graph of the FTSE All Share index over the last 50 years. Rather than focusing on the last few months, it reminded me that long term, stock markets trend upwards. Stats show that shares delivered higher returns than cash over three quarters of all periods of five years in a row since 1899, according to analysis by Barclays. Stretch that to 18 years, and shares performed better than cash 99% of the time.
I also tried to remember that it is time in the market, rather than timing, that counts. Pulling money in and out of the stock market, or waiting on the best time to invest, can mean missing out on the best days. Chopping and changing investments, rather than holding for the long term, also eats up more money in the costs of buying and selling.
Swooping up and down
I stayed put, which meant my loss was only ever on paper.
By March, my money had risen back to the original total. I had covered the cost of investing – roughly £200 in dealing fees and 0.5% stamp duty when buying shares in investment trusts – but not made anything extra.
When share prices plummeted either side of the Brexit vote on June 23, 2016, I did the investing equivalent of putting my fingers in my ears and shouting “La la la, I can’t hear you”. I avoided checking my balance online, so I wouldn’t see the damage. Instead I gritted my teeth and reminded myself that with at least a couple of decades until retirement, the market had time to recover.
Reviewing my investments once or twice a year, to make sure they are still meeting my financial goals, seems sensible. But checking my balance every day would just have been bad for my blood pressure!
I also tried to take doom-laden newspaper articles with a pinch of salt. Headlines shout about stock market falls, but rarely trumpet soaring share prices.
Hanging on in there
Since then, the fall in the value of the pound has propelled the London stock market to record levels, taking my money with it. I braced myself for a downturn after Trump was elected US President in November 2016 – but the markets rose instead.
After a year, my £28,600 had not only clawed back the losses, but grown to almost £33,600, which is 17% up. I wouldn’t have earned anywhere near that, stuck in a savings account.
Two years on, and my balance hit nearly £39,200 in September 2017. It had risen another 17% in a year, up by more than £10,500 since first investing.
Now, past performance is not a guide to future results. I cannot hope to earn this much year in, year out. Over the long term, returns of 5% to 7% a year would be great, from a combination of dividends and higher share prices.
Investing smaller amounts every month would have been less stressful than sinking a single lump sum. But staying invested when prices fell, rather than rushing for the exit, gave my money the time to grow.
Faith Archer is an award-winning personal finance journalist and also a money blogger at Much More With Less