Four charts to coach your clients through turbulent markets

For advisers, large market swings can prompt challenging conversations with clients, particularly when markets are falling, and their portfolios are losing value.

Here, we share four key charts that can help advisers encourage their clients to maintain a long-term focus and stick with their investment strategies when markets turn turbulent.

Chart #1: Bear markets and corrections are a part of life. Stay focused on the long-term.

Since 1972, there have been 9 bear markets in global equities in the UK. But history shows that equities have typically recovered and have tended to post strong results over the long term.

Past performance is not a reliable indicator of future results.

Notes: The chart shows the MSCI World Price Index from 1 January 1972 to 31 December 1987 and the MSCI AC World Price Index thereafter. The shaded areas represent bear markets, defined as price decreases of more than 20%, and highlight the area from the time the index lost 20% until it recovers 20% from the subsequent trough.

Source: Vanguard calculations in GBP, based on data from Refinitiv, as at 22 March 2023.

Chart #2: Dramatic market losses can sting. Recoveries typically follow­.

When markets fall sharply, it’s important to stay invested in order to participate in the recoveries that typically follow.

Past performance is not a reliable indicator of future results.

Notes: Calculations are based on FTSE All Share and data aggregated from Global Financial Data since 1 January 1950, using monthly data. A bear (bull) market is defined as a price decrease (increase) of more than 20%. The plotted areas depict the losses / gains ranging from the minimum following a 20% loss to the respective maximum following a 20% appreciation in the underlying index.

Source: Vanguard calculations in GBP, based on data from Global Financial Data and Bloomberg. Data between 1 January 1950 and 31 December 2022.

Chart #3: Timing the market is futile; the best and worst trading days often happen close together.

One reason investors shouldn’t try to time the market is they run the risk of missing out on strong performance, which can seriously hamper long-term investment success.

Historically, the best and worst trading days have tended to cluster in brief time periods, often during periods of heightened market uncertainty and distress, making the prospect of successful market-timing improbable.

Past performance is not a reliable indicator of future results.

Notes: The chart shows daily returns of the FTSE All Share Price Index. The yellow bars highlight the 20 best trading days since 1 January 1980 and the teal bars highlight the 20 worst trading days since 1 January 1980.

Source: Vanguard calculations in GBP, based on data from Refinitiv. Data between 1 January 1980 and 31 December 2022

Chart #4: Don’t panic during market turmoil.

Investors who have reacted to market events by moving to cash have seen their portfolios underperform the markets. Long periods out of the market make matters worse.

Past performance is not a reliable indicator of future results.

Notes: The chart shows the percentage of times that cash has underperformed a global 60% equity / 40% stock portfolio over 3-, 6-, and 12-month periods after 2-month total returns of global equities were below 5%. For example, global equity returns from 31 August 2008 to 31 October 2008 were -20.74%. Over the following 3-month period until 31 January 2009, cash returned 0.84%, while the 60/40 portfolio returned 1.76%, so that the excess returns of cash were at -0.93%. Equity comprises global equity (MSCI AC World Total Return Index). Fixed income comprises hedged, global bonds (Bloomberg Global Aggregate Bond Index Sterling Hedged). Cash is represented by GBP 3-Month Deposits.

Source: Vanguard calculations in GBP, based on data from Refinitiv. Data is based on the period between 31 January 1990 and 28 February 2022.

Bonus chart: What to do when volatility hits.

Follow Vanguard’s five simple tips to help clients avoid overreacting to short-term downturns and stay on course for long-term investment success.