Invest for the long term. The best time to start is today.
Fear of potential crises or dips in the economy should not influence an investment strategy. This is particularly the case when you want to invest for the long term. As a general rule when investing, taking action typically pays off more than waiting passively.
It is never too late to invest your money
The first half of the year has gone extremely well for the stock markets. Many investors, however, are concerned that they have failed to profit from this. Although a few balanced investment strategies have achieved two-digit performance this year, some overall returns have suffered as a result of sticking to high liquidity. In light of this fact, investors are asking themselves whether they should still invest or if they should wait for a correction and thus cheaper prices. The answer is clear: Investing with a longer investment horizon nearly always pays off more than waiting.
This fact can be derived from three findings.
Firstly, it is never too late to invest successfully. As long as the world population and the money supply are growing and new markets are being created, investors can benefit.
Secondly, it is not necessarily vital to begin investing at a young age to ensure a sufficient investment horizon. More crucial here is the correct assessment of the available capital, your own risk capacity, and the selection of the appropriate strategy.
Long-term investment strategies pay off
Last data point: June 28, 2019
Source: Datastream, Credit Suisse
Investing is a better investment strategy than waiting
Thirdly, the development of financial markets demonstrates that investing is more profitable than waiting.
- On a worldwide basis, equities have performed positively in 74% of all years – and the lower interest rates are, the greater the advantage of investing is compared to waiting. Selecting the right investment strategy is also essential. Performance is more than 82% dependent on this factor.
- The risk of a market correction decreases dramatically the longer the investment horizon is. After ten years, the risk of negative equity performance is nearly zero. A diversified portfolio offers the best protection against risks, but excessive reallocations should be avoided. Changing allocations too frequently is not a sustainable strategy.
- The volatility in today's financial markets is no higher than in the past. Of the 20 largest daily fluctuations in US equities, 14 occurred before 1940. Daily fluctuations generally balance out over time. Since 1935, US stocks have experienced fluctuations of up to +/– 2% per month. Nevertheless, they have achieved cumulative growth in value of over 25,000%.
Based on this fact, it can be concluded that the opportunity costs of waiting are generally higher than the opportunities for returns from having invested. For this reason, the following principle applies to investors who are successful over the long-term: "Today is the best time to invest."
Diversified investment strategies offer high potential returns
Comparison of returns for various asset classes
Last data point: January 1, 2018
Source: Bloomberg, Credit Suisse
Long-term investment in Swiss equities pays off
These observations also apply to Switzerland, in an even more pronounced manner than for other markets. On one hand, the Swiss franc has been the toughest currency in the world for more than a hundred years. During this period, Switzerland has also exhibited the lowest inflation in the world and Swiss government bonds have achieved the best performance worldwide.
In addition, Swiss financial assets have ranked among the most successful in the world for over a hundred years with a return of 6.7% per year. Moreover, Swiss assets are relatively low-risk. Swiss equities have the fourth-lowest volatility in the world, and bonds have the second-lowest.
Lastly, negative interest rates mean that the opportunity costs of waiting are currently much higher than average in Switzerland, as are the risk premiums on equities. The following therefore applies for investors, particularly for long-term investments such as pension investments: "Never put off till tomorrow what you can do today."
Long-term investment in Swiss equities pays off
One Swiss franc invested in a Swiss equity in 1900 would be worth CHF 1,938 today.
Historical performance and financial market scenarios are not reliable indicators of future performance.
Source: Credit Suisse Research Institute
Good investment strategies outlast crises
Investors with high liquidity reserves often argue that the world is currently facing dangerous geopolitical upheavals or that it is too late to catch up with an expansion that has already gone on for ten years. Typically, however, geopolitical crises have little effect on stock exchanges. Conflicts may bring the world to the edge of the abyss again and again, but they never mean the end. Every time, people and companies once again manage to defy such situations and make it through. They are resilient, and always get back on their feet – as do the stock markets along with them.
