With the recent market volatility, it’s worth looking at how investment companies have performed during market highs and lows. Data from the Association of Investment Companies (AIC) suggests that, in the absence of a crystal ball, it is time in the market that is key to investor returns.

Whilst AIC data illustrates that performance is clearly enhanced when the investment is made at or near the bottom of the market, given the difficulties of timing the market it’s more important to be invested in the market.

An investment in the average investment company, even at the top of the market at the end of December 1999, would have more than doubled over the last 13 and a half years to 31 May 2013. A £100 investment in the average investment company at around the time of the market’s all time high at the end of December 1999 has grown to £226 by 31 May 2013, and the UK Growth sector has fared even better, returning £272.

Lump sum investment beats regular saving even at the market peak

AIC data suggests that even at the top of the market, at the end of 1999, on average, lump sum investments are outperforming the equivalent amount drip fed into the market on a monthly basis. Whilst £50 per month in the average investment company since 31 December 1999 until end May 2013 (a total investment of £8,050) has grown to £15,760, the equivalent lump sum investment has grown to £18,188.

But regular investing beats lump sum investing during shorter periods of volatility

Where regular saving has outperformed lump sum investing is during shorter periods of market volatility, like the last 5 years which includes the credit crunch and recession. Whilst £50 per month in the average investment company over five years to 31 May 2013 (a total investment of £3,000) has grown to £4,140, the equivalent lump sum investment has grown to £3,893.

But if you do get your timing right….

Of course for the lucky few who have actually benefited from market timing, the returns are obviously much greater still. A £100 investment in the average investment company on 28 February 2003, just before the invasion of Iraq on 19 March 2003, when markets were at one of their most recent low points, has more than tripled to £347 over 10 years and three months to 31 May 2013. The UK Growth investment company sector has performed even better over the same time frame, returning £400.

Over the same period, a £50 per month investment in the average investment company (a total investment of £6,150) has grown to £10,563, whilst the equivalent lump sum investment has grown to £21,335.

Credit crunch…

Similarly, those investing post credit crunch and during the recession at the end of February 2009 just before the FTSE 100 hit a six year low, would have doubled their money in just four years and three months. A £100 investment in the average investment company from 28 February 2009 to 31 May 2013 has grown to £209, and has performed better still in the UK Growth sector, which has returned £224.

Annabel Brodie-Smith, Communications Director, Association of Investment Companies (AIC) said: “Whilst market timing can have a significant impact on returns, given how notoriously difficult this can be, the performance figures illustrate that time in the market is key to stock market returns.

An investment into the average investment company even at the FTSE 100’s all-time high in December 1999 has still more than doubled to 31 May 2013. And whilst lump sum investing has outperformed monthly investing over the long-term, which includes several periods of market turbulence, over shorter periods of market volatility, regular investing has outperformed.

Regular investing can be a useful way of reducing your risk profile, because investors buy fewer shares when prices are high, and more when prices are low. But because lump sum investments have more money working from the outset for a longer period of time, it is not surprising to see lump sum investing outperforming strongly over the long-term.”

Share Price Total Return - 1

Share Price Total Return – 1 (Click to enlarge)

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Share price Total return – 2

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