Keys to prevailing through stock market declines.

Transcription

1 FOR ADVISOR USE ONLY Keys to prevailing through stock market declines. The market is the most efficient mechanism anywhere in the world for transferring wealth from impatient people to patient people. Warren Buffett Declines can cause imprudent behaviour by filling investors with dread and panic Realise that declines are inevitable and have not lasted forever. Given recent stock market turbulence and uncertainty, you may have doubts about your long-term investment strategy. Here are some tips to help you avoid common pitfalls and stay on track toward achieving your financial goals. Declines have been common and temporary occurrences History has shown that stock market declines are a natural part of investing. While declines have varied in intensity and frequency, they have been somewhat regular events. It may also reassure you to know that the market has always recovered from declines. Although past results do not guarantee future results, remembering that downturns have been temporary may help assuage your fears. The bottom line? Accept declines as a normal part of the investment cycle. A history of market declines MSCI All Country World Index, Type of decline Average frequency 1 Average length 2 Last occurrence 5% or more About twice a year 67 days July % or more About once every 2 years 173 days June % or more About once every 3.5 years 255 days October % or more About once every 6 years 465 days October 2011 thecapitalgroup.com 1. Assumes 50% recovery of lost value 2. Measures market high to market low Source: MSCI 1

2 Proper perspective can help you remain Studies show that people place too much emphasis on recent events and disregard long-term realities. Even amidst a market downturn, remember that stocks have rewarded investors over time. The stock market has a reassuring history of recoveries. After slipping in 2003 and more recently hitting lows in 2009, the MSCI All Country World Index has bounced back. The average return for the 10 years ended 31 December 2014 was 6.6%. Long-term investors have been rewarded. Even including downturns, the MSCI All Country World Index s mean return over all rolling 10-year periods from 1988 to 2015 was 7.2%. The bottom line? A long-term perspective can help you prevail through challenging times. MSCI All Country World Index rolling 10-year average annual total returns ( ) 16% 12 8 Mean = 7.2% % Average return for 10 years ending 31 Dec Dec 97 Dec 99 Dec 01 Dec 03 Dec 05 Dec 07 Dec 09 Dec 11 Dec years ending Source: RIMES Results are calculated on a monthly basis. The index is unmanaged and, therefore, has no expenses. Investors cannot invest directly in an index. Past results are not predictive of results in future periods. Research has shown that losses feel twice as bad as gains feel good. Keep in mind that fleeing the market to reduce losses could mean losing out on gains when stocks recover. Don t try to time the market The market has shown resilience. Most MSCI All Country World Index downturns of about 15% or more have been followed by a recovery. Recoveries have been strong. Returns in the first year after market declines can reach as high as 78.9%. Over a longer term, the average value of an investment approximately doubled over the five years after each market low. Don t miss out on potential market rebounds. Although recoveries aren t guaranteed, taking your money out of the market during declines means that if you don t get back in at the right time, you ll miss the full benefit of market recoveries. The bottom line? Consider staying invested and not trying to time the market. 2

3 Five biggest market declines and subsequent five-year periods ( ) 3 Periods of decline Percent decline (%) MSCI All Country World Index 12-month returns (%) 4 Positive periods (22) Negative periods (2) 1st year after low 2nd year 3rd year 4th year 5th year Average annual total return for the five-year period (%) Value of a hypothetical $10,000 investment at the end of the five-year period ($) 19/5/08 9/3/ ,291 16/3/00 9/10/ ,839 2/5/11 4/10/ * N/A 15.5** 17,357*** 16/7/90 16/9/ ,464 31/10/07 17/3/ ,973 Average , Market downturns are based on the five largest declines in the MSCI All Country World Index s value (excluding dividends and/or distributions) with 50% recovery after each decline. 4. The return for each of the five years after a low is a 12-month return based on the date of the low. For example, the first year is the 12-month period from 3/9/09 to 3/9/10. The percent decline is based on the index value of the unmanaged MSCI All Country World Index excluding dividends and/or distributions. Each market decline reflects a period of more than 80 days with 100% recovery after each decline. The average annual total returns and hypothetical investment results include reinvested dividends and/or distributions but do not reflect the effect of sales charges, commissions, account fees, expenses or taxes. * Return from 4/10/14 to 31/7/15 ** Average return for 4/10/11 to 31/7/15 *** Value based on return between 4/10/11 to 31/7/15 Past results are not a guarantee of future results. Source: MSCI 3

4 Investors often make poor decisions when they let their emotions take over. Stay focused on your long-term goals and carefully consider your options. Emotions can cloud your judgement Have you heard of the investment adage buy low, sell high? Strong emotions during market swings can tempt you to do the opposite - buy high and sell low. It may also feel that doing something - anything - during a downturn is better than doing nothing. Although inaction can seem counterintuitive, staying invested in the market could be the better choice. The bottom line? Avoid making rash decisions based on emotion. Top Prices high Investors often buy here Market rising Emotion Market declining Investors often sell here Regular investing does not ensure a profit or protect against loss. Investors Bottom Prices low should consider their willingness to keep investing when share prices are declining. Strategies to get through turbulent times It s difficult to see the value of your investments fall. But during challenging times, try to keep some fundamental investing principles in mind: Look beyond the headlines. Sensational news headlines are meant to grab your attention, but it can be dangerous to let the media influence your investment decisions. Ignore the noise and stay focused on your goals. Don t forget history. Market declines are part of the economic cycle. Historically, recoveries have followed downturns. Maintain a diversified portfolio. Different investments may go up and down at different times. Spreading your money over a variety of investment types and regions can help reduce volatility in your overall portfolio. Don t try to time the market. No one knows the perfect times to get in and out of the market. Consider holding quality investments with the potential to rise in value over the long term. Invest regularly, even when the market is falling. Instead of fearing down markets, think of them as opportunities to invest at lower prices. 4

5 All information as at 25 August 2015 unless otherwise stated. The information provided in this communication is of a general nature and does not take into account your objectives, financial situation or needs. Before acting on any of the information you should consider its appropriateness, having regard to your own objectives, financial situation and needs. This document is intended solely for the person to whom it is addressed and is being supplied only to those investors who have expressly requested it. This document does not constitute a public offer or an invitation to buy shares in any jurisdiction, including the United States. The shares of the Capital Group Luxembourg-domiciled SICAV funds (the Fund ) described herein have not been, and will not be, registered under the U.S. Securities Act of 1933, as amended (the 1933 Act ), and the Fund has not been and will not be registered under the U.S. Investment Company Act of 1940, as amended. This document may not be distributed to any non-u.s. client while in the U.S. The terms U.S. person and United States have the definitions in Regulation S under the 1933 Act. The Fund has been authorized for public sale in certain jurisdictions and private placement exemptions may be available in others. Fund shares may not be directly or indirectly offered or sold in any jurisdiction where such offering or sale is prohibited. If you act as representative of a client it is your responsibility to ensure that the offering or sale of fund shares complies with relevant local laws and regulations. Please contact Capital Group if you are unsure of the availability of the fund in your and/or your client s jurisdiction. This communication is issued by Capital International Limited, (authorised and regulated by the UK Financial Conduct Authority), a subsidiary of the Capital Group Companies, Inc. (Capital Group). This communication is intended for professional investors only and should not be relied upon by retail investors. While Capital Group uses reasonable efforts to obtain information from sources which it believes to be reliable, Capital Group makes no representation or warranty as to the accuracy, reliability or completeness of the information. This communication is not intended to be comprehensive or to provide investment, tax or other advice Capital International Limited. All rights reserved. CR