Investing in times of crisis
What you need to know about the current market situation
Fluctuations are part and parcel of investing. Major turbulences, such as those we are currently experiencing, also occur from time to time. But even if they don’t feel good, it is important to persevere and hold on to your investments.
In this blog post, we would like to put the current situation into perspective and thus reduce any uncertainties and doubts. In doing so, we will answer the following questions:
It is often not possible to explain exactly why prices on the stock markets fall or rise. Currently, the high inflation rates that can be observed in many countries and the associated increases in base rates as a countermeasure by the central banks as well as the war in Ukraine are probably the most serious reasons for the uncertain mood on the stock market.
Not only the economies of Russia and Ukraine are affected by the latter – the sanctions imposed by the West also affect companies worldwide that do business with Russian companies. Many investors fear that such companies have a bad future and therefore sell their shares. There are fewer people who want to buy. That is why the prices of many equities are currently falling, and with them the prices of investment solutions that include such equities.
Sure, it doesn’t feel good when the value of your investment solution falls sharply or you are even in the red. If you look at the past, you will see that market turbulence and bad phases have always been part of investing. However, no one can predict with certainty how often they will occur, how long they will last and how strong the turbulence will be. Just as little is known about how the situation will develop from now on and how quickly the markets will recover.
A look at the past shows that the economy has always overcome even major crises such as the financial crisis of 2008/09 or the Corona crisis in spring 2020.
Development of the Swiss stock market measured by the Swiss Performance Index (SPI), financial crisis and Corona crisis marked.
During the financial crisis, the Swiss stock market (SPI) fell by a full 50% within 1.5 years and finally had recovered completely after a little more than 4 years. And in the “Corona Spring” of 2020, the SPI fell by 26% within one month – the fastest collapse in the history of the SPI. At the beginning of 2021, however, and thus long before the Corona situation had improved significantly, the price was already back at its pre-shock level.
These and other examples show that it can be assumed that the markets will very likely recover from the current drop over time.
With your findependent investment solution in ETFs, you are deliberately widely diversified. In fact, in more than 3,000 individual assets, spread across various sectors, countries and regions. This has an enormous advantage, especially in times of crisis.
Your investment solution would only fall to 0 francs if all these several thousand companies went bankrupt and their equities became worthless – and that is extremely unlikely.
Because even if some companies go bankrupt or some sectors never fully recover, the vast majority of companies will overcome the crisis. This can happen very quickly, as in the Corona Spring of 2020, or it can take years, as after the financial crisis of 2008, and depends on how quickly the situation calms down again. But in the end, the global financial markets have survived every crisis so far.
With findependent, we pursue a passive buy and hold investment strategy. Our broad-based investment solutions are geared towards long-term investment. This means that we deliberately do not react actively to current and other market developments, but review the ETFs we use and their weightings only once a year, and even then we generally make only small adjustments.
Do you need another overview of how long-term investing with ETFs works and how exactly the value of investments comes about? Then you’ll find the answers in this blog.
Even if it’s not easy, it’s best to hold on to your investments, no matter what the market situation is like at the moment. This way you will definitely not miss the next upswing and will be more successful in the long run than if you were to sell your investments now at low prices. This would turn the loss on paper into a realised loss.
Especially in “bad” times, we recommend regular investment. Because when prices are low, you receive more ETF shares for your money than when prices are high. If you invest at regular intervals over several points in time, you will be more successful on average than if you try to speculate on the one “perfect” point in time. We illustrate this so-called “dollar cost averaging” effect in this blog post based on the development during the “Corona year” 2020.
Either way, you should avoid making emotional decisions and instead stick to your current plan. Finally, we have a few tips to help you succeed:
- Don’t drive yourself crazy by constantly checking your investments in the app.
- Don’t waste your time and energy reading financial news.
- Don’t forget your long-term investment horizon in the daily flood of information.
- Focus on what you can control. Now is a good time to question spending and consider whether you could actually save and invest more of your salary.
- You may need to be patient for a longer period of time – it’s good to be mentally prepared for this.