Quote of the Month – Lessons From History

Manpreet Gill - Standard Chartered:

“[In the global financial crisis] the global equity index fell almost 60% from its October 2007 peak to its March 2009 trough.

“Looking back at history, we now know that the correct action for a buy-and-hold investor with a multi-decade horizon would have been to do nothing. However, amid the screaming headlines at the time, would we honestly have been able to avoid making the mistake of selling some, or all, of our holdings in panic?

“In today’s bull market, it is easy to say we would not. Nevertheless, there are countless anecdotes of investors who failed to hold their nerves at that time: selling close to the market low and exacerbating the situation by not reinvesting to take advantage of the subsequent equity market rebound. Most diversified investment allocations would have fallen over that period as well.

“However, a diversified allocation across equities, bonds, gold and cash would have fallen by much less than 60% and gains in asset classes like bonds and gold would have offered opportunities to take profit and rebalance into equities as they fell. This would not only have reduced the chances of making an investment error, but possibly even created a situation where rebalancing would have led one to add to equities at an opportune time.”