Uncertainty and unprecedented are the words I’d choose to describe the last ten years.
We’ve had Brexit, a global pandemic, conflict in Ukraine and the biggest cost-of-living squeeze in a generation. With this, we’ve seen economies and stock markets wax and wane.
But should investors be worried when markets fall?
Here’s a look at some of the biggest market drops and how long they took to recover.
Past performance isn’t a guide to the future, but there are things we can learn from history to make us better investors today.
This article isn’t personal advice, so if you're not sure if an investment is right for you, ask for financial advice. Unlike the security offered by cash, all investments fall as well as rise in value, so you could get back less than you invest.
Invest for the long term – we really mean it
Market drops can be worrying. Seeing the value of investments fall isn’t nice and blaring headlines don’t help. But they don’t last forever.
UK stock market returns
Past performance isn’t a guide to the future. Source: Thomson Reuters Eikon, 8/02/23.
You can see the UK stock market has had its fair share of ups and downs. But over the long term, it’s risen.
This shows how important it is to invest for the long term – that’s not a few months, a year. It’s longer. At least five years.
Market drops and comebacks from history
No stock market ‘crash’ has ever been the same, but they do all share one thing in common – the market recovered.
Here are some of the biggest UK stock market falls since 1985 and how long it took to recover.
For these examples, we assumed you’d invested at the highest point before the market started to fall.
Value of UK stock market following drops
Past performance isn’t a guide to future returns. Source: Thomson Reuters Eikon, 19/07/2021. Where no figures are shown, data is unavailable.
Following huge drops in 1987, the dotcom bubble and the 2008 financial crisis, things did get better. And it wasn’t too long before the stock market was at a higher level than before.
Even if you invested at the height of the market before any of those drops, you’d be in better shape five years after.
What could be next for stock markets in 2023?
Practical tips for uncertain markets
During times like these, it’s best to focus on the things you can control.
Try to build a portfolio that’s diversified so you always have something working in your favour.
You could also consider investing monthly to help you make the most of market ups and downs.
It can be a lower-risk strategy and helps you benefit from lower prices if markets falls. It can of course work the other way if markets rise. However, by drip feeding into a bumpy market, the average price you pay for your investments should normally end up lower than investing all your money at once.
Whatever you decide, a long-term investment horizon is essential.
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Charlie is a part of our writing team that covers investments and ISAs. He's passionate about the value of long-term investing and making your money work harder for you, using his writing to help our clients make the most of their money.