Hello,
Markets inched higher last week, with the S&P 500 market index garnering much attention as it hit ‘an all-time high’. Headlines like this should come with some health warnings for Irish investors. We’ll focus on two here.
Firstly, what does the S&P 500 represent? This is a price return and not a total return index. Therefore, the powerful effect of dividends and their reinvestment are not included. Secondly, it’s in US Dollar terms. As we all know, currencies can have a powerful impact on the final returns for euro denominated funds such as this in Zurich. And, whilst the US is unequivocally the largest and most important stock market in the world – it does not represent the world. Areas such as the eurozone, UK, Japan and Asia ex-Japan are not included in such a statistic.
The behavioural impact. It is likely that many advisors in the Irish market will field a question asking, ‘is it now time to sell?’ The short answer is no. Using the same S&P 500 metric, RBC tells us that:
- The index didn’t overtake its ‘Global Financial Crisis’ high until March 2013
- However, it went on to make another 241 new all-time highs in the 2010s
- In 2020 alone it hit 33 all-time highs
- There have been 1,130 since 1950
- Finally, three years after an all-time high, the index was higher 98.4% of the time
We of course don’t know where markets go from here, but the above should help provide some comfort for those worried about investing at all-time highs.
As always, if you wish to discuss anything in further detail, please do get in touch.
