Using Market Insights to discuss Principles of successful long-term investing

Transcription

1 Using Market Insights to discuss Principles of successful long-term investing

2 Nandini Ramakrishnan

3 Learning objectives Describe the principles of successful long-term investing Give examples of time tested strategies for portfolio management Apply key insights that guide portfolio construction

4 Principles for successful long-term investing INVEST FOR THE FUTURE CASH IS RARELY KING COMPOUNDING WORKS MIRACLES VOLATILITY IS NORMAL STAYING INVESTED MATTERS DIVERSIFICATION WORKS

5 Invest for the future We are living longer Probability of reaching ages 8 and 9 % probability, persons aged 65, by gender and combined couple Men Women Couple at least one lives to specified age years 9 years Source: ONS Life Tables, J.P. Morgan Asset Management. Guide to the Markets - UK. Data as of 3 September 217.

6 is rarely king pays less Income generated by 1, in a three-month bank deposit GBP (LHS); % change year on year (RHS) 27: 6, 6, Income Inflation (y/y) 6 4, Sep 217: , 2 '1 '3 '5 '7 '9 '11 '13 '15 '17 Source: Bloomberg, ONS, J.P. Morgan Asset Management. Guide to the Markets - UK. Data as of 3 September 217.

7 is rarely king underperforms over the long term Total return of 1 in real terms GBP, log scale for total returns 1, Annualised real returns Equities 5.3% 2.% Bonds 1.7% 4.1% 1.8% -.3% Equities: 4 Bonds: 7 1 : Source: Dimson, Marsh and Staunton ABN AMRO/LBS Global Investment Returns Yearbook 28, FactSet, J.P. Morgan Asset Management. J.P. Morgan estimates from 28. Equities: FTSE 1; Bonds: JPMorgan GBP Government Bond Index; : three-month GBP Libor (prior to 28 cash is short dated Treasury bills). Guide to the Markets - UK. Data as of 3 September 217.

8 Compounding works miracles Start early and invest regularly 5, invested annually with 5% growth per year GBP 7, 6, 5, 4, 3, 2, 1, Starting at age 25 Starting at age , , Age Source: J.P. Morgan Asset Management. For illustrative purposes only, assumes all income re-invested, actual investments may incur higher or lower growth rates and charges. Guide to the Markets - UK. Data as of 3 September 217.

9 Compounding works miracles Re-invest income from investments if you don t need it 5, investment with/without income reinvested GBP, FTSE All-Share returns 1, With dividends reinvested 8, 6, Without dividends reinvested 94,563 4, 29,65 2, '86 '88 '9 '92 '94 '96 '98 ' '2 '4 '6 '8 '1 '12 '14 '16 Source: Bloomberg, FTSE, J.P. Morgan Asset Management. Based on FTSE All-Share index and assumes no charges. Guide to the Markets - UK. Data as of 3 September 217.

10 Volatility is normal; don t panic Keep your head when all about you are losing theirs FTSE All-Share Index intra-year declines vs. calendar-year returns Despite average intra-year drops of 15.8% (median 12.6%), annual returns are positive in 22 of 31 years % Calendar-year return Intra-year decline 4 3 YTD '86 '88 '9 '92 '94 '96 '98 ' '2 '4 '6 '8 '1 '12 '14 '16 Source: FactSet, FTSE, J.P Morgan Asset Management. Returns are based on local price only and do not include dividends. Intra-year decline refers to the largest market fall from peak to trough within a short time period during the calendar year. Returns shown are calendar years from 1986 to 217. Guide to the Markets - UK. Data as of 3 September 217.

11 Staying invested matters Impact of being out of the market Returns of FTSE All-Share GBP, value of a 1, investment between 1996 and 216 with annualised return (%) 5, 45, 7.4% 4, 35, 3, 25, 4.2% 2, 15,.2% 1, 5, Initial investment -2.9% Fully invested Missed 1 best days Missed 3 best days Missed 5 best days Source: FactSet, FTSE, J.P. Morgan Asset Management. For illustrative purposes only. Assumes all income is reinvested; returns calculated daily over the time period assuming no return on each of the specified number of best days. Guide to the Markets - UK. Data as of 3 September 217.

12 Staying invested matters (part 2) US asset returns by holding period Range of equity and bond total returns %, annualised total returns, 195-present 75 Large cap equity Bonds 61% 5/5 portfolio 5 48% 49% % 24% 24% 21% 17% 17% 18% 13% 15% -3% -1% -7% -3% % 1% 4% 4% 1% -18% -24% -43% 1-yr rolling 5-yr rolling 1-yr rolling 2-yr rolling Source: Strategas/Ibbotson, J.P. Morgan Asset Management. Large cap equity represents the S&P 5 Composite and Bonds represents the Strategas/Ibbotson US Government Bond Index and US Long-term Corporate Bond Index. Returns shown are per annum and are calculated based on monthly returns from 195 to latest available and include dividends. Guide to the Markets - UK. Data as of 3 September 217.

13 Diversification works Asset class returns (GBP) % 52.6% 59.4% 31.6% 1.% 14.9% 25.% 35.1% 8.2% 36.3% YTD 18.% QTD 4.6% 1-yr ann. 12.4% Vol. 27.1% 14.7% 26.5% 41.9% 22.9% 8.1% 14.4% 9.6% 12.8% 7.7% 33.4% 7.3% 1.6% 11.6% 17.3% 12.6% 25.% 18.4% 2.5% 7.1% 13.4% 6.% 12.1% 5.5% 33.1% 5.% 1.1% 9.6% 16.8% 8.9% 6.9% 16.5% 18.4% 5.1% 12.9% 5.3% 9.6% 2.9% 3.8% 3.3%.4% 9.3% 16.7% 8.7% 1.3% 16.4% 15.9% 3.9% 11.4% 1.3% 8.7% 2.3% 3.4%.8%.1% 8.9% 14.% 7.7% 1.2% 13.5% 15.3% 1.2% 8.%.5% 6.2% 2.% 29.%.3% -.4% 8.8% 12.8% 6.1% -12.5% 12.1% 14.9% -.9% 7.5% -1.5% 5.4% 1.3% 25.8%.1% -.8% 7.8% 1.5% 4.9% -13.2% 7.3% 1.6% -2.9% 6.3% -4.1% 4.3%.7% 24.4% -1.% -1.% 7.% 9.8% 4.7% -17.4% 6.1% 9.2% -4.3% 1.4% -6.1% 4.1% -.8% 21.3% -1.7% -1.% 3.5% 8.7% 1.4% -18.3% 2.2% 9.2% -12.7% -2.6% -1.%.6% -9.7%.7% -2.2% -1.7% 2.1% 7.7% -19.2% -35.2% -8.6% 1.% -17.6% -5.4% -11.2% Source: Barclays, Bloomberg, FactSet, FTSE, MSCI, J.P. Morgan Economic Research, J.P. Morgan Asset Management. Annualised return covers the period from 27 to 216. Vol. is the standard deviation of annual returns. : Bloomberg Barclays Global Aggregate Government Treasuries; : Bloomberg Barclays Global High Yield; : J.P. Morgan EMBI+; : Bloomberg Barclays Global Aggregate Corporates; : Bloomberg UBS Commodity; : FTSE NAREIT All ; : MSCI World; : MSCI EM; Hedge funds: Credit Suisse/Tremont Hedge Fund; : JP Morgan United Kingdom (3M). Hypothetical portfolio (for illustrative purposes only and should not be taken as a recommendation): 3% DM equities; 1% EM equities; 15% ; 12.5% government bonds; 7.5% ; 5% ; 5% commodities; 5% cash; 5% and 5% hedge funds. All returns except are unhedged. All returns are total return, in GBP. Guide to the Markets - UK. Data as of 3 September % -2.3% -1.1% -1.5% -2.% -1.1% 2.2%

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15 Learning outcomes Describe the principles of successful long-term investing Give examples of time tested strategies for portfolio management Apply key insights that guide portfolio construction

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