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Expecting a 10% equity market decline every 18 months could help investors rest easier

14 August 2023 Adriaan Pask, CIO at PSG Wealth
Adriaan Pask, CIO at PSG Wealth

Adriaan Pask, CIO at PSG Wealth

Bear markets and market downturns should be considered normal for long-term investors – here’s why.

• While the world hasn't technically entered a recession or bear market as yet, the likelihood that it will is high - markets decline by about 40% at least once every decade.
• Locally, we should expect the FTSE/JSE All Share Index (ALSI) to exhibit considerable volatility akin to other emerging markets
• An expectation of possible downturns and staying disciplined and invested will, in most scenarios, reward patient investors

Starting to save at a young age and saving as much as possible are two frequently cited basics. Another, less frequently mentioned variable, is that bear markets, market downturns and recessions are more normal than many investors imagine. If investors were to understand that markets could fall by about 10% almost every year, they would be more prepared and less likely to panic and make investment mistakes in volatile times like the last few months.

While the world hasn't technically entered a recession or bear market as yet, the likelihood that it will is high. Data confirms that during an average bear market cycle, it takes more than nine months for the markets to recover. The 2022 cycle lasted eight months and markets fell by about 25%. It seemed like the markets were recovering but, given the risks, we may not have seen the end of this latest correction cycle yet.

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