When is the best time to plant a tree?
IN THE first few weeks of 2016, world financial markets experienced their worst start to a calendar year since records began. To illustrate, the MSCI World Index (a broad global equity benchmark representing share-price performance across the largest developed markets) lost as much as 10 per cent (measured in pounds) between January 1 and February 11,2016.
What a difference a year makes.Over the corresponding period at the beginning of 2017, the performance of global equities could hardly have been more different, with markets having gained 2.4 per cent in the first six weeks of this year.
It would be fair to ask why equity returns have been so much better this year, compared to 12 months ago.
Even though commentators will postulate any number of reasons, relating to economic growth, the outlook for interest rates, perceived optimism related to the presidency of Donald Trump and the like, the real causes are a multitude of inter-related factors and self-correcting mechanisms at work within the world of investments.
The bottom line is that financial markets are notoriously difficult to forecast with any sort of accuracy; in fact, one can argue that it is nigh impossible.
Against this background, it is probably best to simply consider that, on average, equities have delivered real returns (ie after adjusting for inflation) of more than six per cent per annum since 1900.
Clearly there have been some starting points that were better than others over the past century. But, even if your timing might have been slightly unfortunate, the fact you committed money to equities a decade or two ago would make a much bigger difference to your relative wealth today than the exact timing of your commitment.
There is an old African saying: “The best time to plant a tree was 20 years ago. The second best time is now.”
With hindsight, we now know one could have built a very nice nest egg by investing into a collection of quality shares practically any time in the past 10 or 20 years. But, having said that, if you have not been able to build up such a portfolio to date, it is probably best to start sooner rather than later.
Deon Gouws is chief investment officer at Credo Wealth, dgouws@credogroup. com, @DeonGouws_Credo, credogroup. com