Don’t panic!
How savers who kept their nerve in 2007 crisis have come out on top
INVESTORS who held their nerve and invested money when the financial crisis hit in 2007 have been richly rewarded for their bravery.
It is now ten years since the start of the financial crisis, which began with the run on Northern Rock – the first on a UK bank in 150 years.
The effects are still being felt today.
But analysis from fund supermarket Fidelity shows that those who kept putting money into investment funds through the crisis are more than £30,000 better off than those who did not.
In the famous words of Corporal Jones, from TV’s Dad’s Army: ‘Don’t panic!’
Investors who put £5,000 a year into a fund that mirrored the performance of the FTSE All Share over the past decade would have seen their fund grow to £81,561.
Those who put the same amount into a cash savings account would have amassed just £50,603.
Tom Becket – chief investment officer of Psigma Asset Management – says: ‘Quite often, when the pain of investing feels at its very worst, that is the best time to buy.
‘Investors need nerves of steel and the willingness to wait as, quite often, things get worse before they get better.’
The stock market hit its nadir in February 2009. Data from wealth manager Canaccord Genuity shows how investors who made the right calls at this time could have seen the value of their investments rocket.
It has analysed the performance of 500 companies since then and found that the top-performer, equipment rental firm Ashtead Group, has seen its share price climb ten-fold from 178p to 1,801p.
At the other end of the spectrum, mining company Lonmin has seen its share price collapse 99 per cent over the same period.
The strongest stock market sector over the past ten years has been technology, where a £10,000 investment would now be worth
£48,530, according to analysis by stock broker Interactive Investor.
If you had invested the same amount into the financial sector, it would have grown to just £11,115 over the same period.
The technology sector has also been home to some of the best performing funds of the past decade.
The Polar Capital Global Technology fund would have turned £10,000 into £43,338 and Pictet Digital fund would have grown the same amount to £43,087. But ten years ago many investors would have failed to predict the stellar success the technology sector would enjoy, particularly as the dotcom bubble burst was still fresh in many people’s minds.
Becket says: ‘It is the time of maximum pain, when a sector is really hated and money is flooding out of it, that has proved a good time to invest over the past decade.’
He says that other great ‘out of favour’ investment opportunities have proved to be the aftermath of the Japanese Fukushima nuclear disaster in 2011 and during the European sovereign debt crisis in 2009.
The average Japanese investment fund has returned a hefty 100 per cent over the past five years, while the typical European fund is up 93 per cent over that time.
But it takes a bold investor to stay the course when the stock market slumps.
Tom Stevenson, investment director at Fidelity, says: ‘Many investors had their fingers burned when the financial crisis kicked off ten years ago and as a result have sheltered their savings in cash ever since.
‘But if you had done that, your savings would have stagnated because of ultra-low interest rates, whereas those who kept investing will have seen their cash grow significantly.’
Investors who kept drip-feeding money into their investments, even when the stock market crashed, will also have been given an extra boost by pound-cost averaging, where you get more fund units or company shares when they are cheaper and fewer when they are more expensive.