We now live in a fast-paced, digitalised world, where everybody is connected via markets and the internet. We are directly affected by news and events on the other side of the globe.
The investment lessons we can we learn from this are:
Buy, hold, and grit your teeth
Humans are living longer and people in Western society can expect to live well into their eighties. As medical care improves, longevity is likely to rise further. One implication: investors in their 40s or 50s should still be taking a decent amount of risk – and planning ahead in terms of decades, not years.
Risk means equities. They are the best way to generate returns over the long term. Since 1900, world equities have returned about 5% per year above inflation. Bonds were way behind, on 1.9%, and cash returned 0.8%. Equities are the best way to get the most from your money.
When markets are down, long-term investors should aim to buy, not sell. They should benefit from market ups and downs, rather than be killed by them.
Because we cannot accurately predict how businesses and financial markets will fare in the future, it is good to spread your risk. Holding some of everything usually balances out to give you decent returns eventually.
Conversely, having all your eggs in one basket is dangerous. Diversification between asset classes, countries and sectors is a core principle of long-term investing.
Don’t listen to doomsayers
Bad news gets people’s attention. There is always bad stuff happening somewhere in the world, and there are always doomsayers saying that things are going to get worse, or that the global financial system is about to implode.
Don’t be fooled. Most of the predicted disasters do not actually materialise. Negative headlines sell newspapers but don’t help investors make money.