A little over three years ago, towards the end of 2019, the world first heard of Covid. It wasn’t long before governments and health authorities across the globe realised that they were dealing with a pandemic, which would lead more than 273 million confirmed cases across Europe (according to the World Health Organisation on 13 March 2023).
Sadly, of those cases, more than 2.1 million Europeans lost their life to Covid. In an attempt to get control of the rapidly spreading virus, governments and health authorities introduced lockdowns, which while necessary, spelt disaster for the tourism and leisure industry.
According to Schengenvisa in April 2021, France’s economic output shrunk by €103 billion in 2020 thanks to the massive losses made by its travel and tourism industry. You may remember that during the pandemic, many airline and cruise-line companies were brought to their knees, with shares plummeting thanks to lockdown and other travel restrictions.
In March 2020, CNBC reported that cruise companies Royal Caribbean and Norwegian both lost more than 70% of their value in just 30 days. At the time many wondered how the travel sector would bounce back from the pandemic, sparking fears it could take many years to reach pre-Covid levels of business.
Yet at the start of 2023, This is Money revealed that Saga had seen its sales soar thanks to demand for cruises following the lifting of the pandemic restrictions. So much so, Saga is now predicting an increase in profits of up to 50% on the previous year.
While it may not be obvious, the huge demand for foreign holidays and cruises after the dark days of Covid provides important lessons about investing. Read on to discover three.
1. When investing, always expect the unexpected
The pandemic was a genuinely unpredictable event, and as an investor you should always be prepared for unexpected events that could result in a short-term downturn of the stock market. Thankfully, most unexpected events, which are known as Black Swan events – read here to discover why we’re called Black Swan Capital – will not be in the form of a global pandemic.
Yet geopolitical events, conflicts and companies announcing reduced profits can all result in a jittery stock market. The good news is that historically, the markets have tended to bounce back over time, and typically gone on to offer investors growth potential.
This is highlighted by the following illustration, which shows the performance of the MSCI Europe index from March 1998 to the beginning of March 2023. The index tracks the performance of a basket of companies across 15 EU countries.
Source: MSCI Europe
As you can see from the values on the left-hand axis, broadly speaking, the index has increased significantly during the 25-year period, despite significant downturns along the way – something we will look at in more detail in a moment.
Always remember that past performance is no guarantee of future performance.
2. Typically, you should Invest for the long-term
Studies have shown that, statistically, the longer you invest, the more likely your money is to enjoy growth. A study by Nutmeg used global stock market data from between January 1971 and May 2020 to establish the likelihood of investments growing if you invested for different periods of time.
It revealed that if you had picked any day at random during the period and invested for one day, you would have had a 52% chance of making a profit. This increases to a 65% chance of seeing growth if you invested for any three-month period.
Researchers also found that if you had invested for one year, this increased again to 72%, and your money would have had a 94% chance of seeing growth if you invested for 10 years. Interestingly, the study found that those who invested for 13 and a half years at any point during the 29 years never lost money.
As past performance cannot guarantee future performance, these findings should not be relied on. That said, they do illustrate one of the most important sayings in the world of finance: “it’s time in the market that counts, not timing the market”.
3. Panic selling could be something you bitterly regret
Stock markets inherently have good and bad weeks, or even days. Seeing the value of your investments drop when the market takes a downturn is never easy, yet more often than not, the best strategy is to try to stay calm and aim to ride the downturn out.
This is why having a long-term goal can be so important, as it gives you something to concentrate on when the stock market becomes volatile. As a result, you’re less likely to sell your investments in a bid to limit potential losses, something that could turn a paper loss into an actual loss.
Furthermore, selling your shares will deprive your money of any chance of recovery when the stock market bounces back. To demonstrate this, you might want to refer back to the illustration of the MSCI Europe index in point one.
As you can see, it suffered significant downturns following the 2008 financial crisis and the Covid pandemic of 2020. If you had sold your investments during these, or any of the other downturns, you would have missed out on the growth potential provided when the index later bounced back.
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Working with a financial planner will ensure that you have a better understanding of investing and your options should the stock market suffer a downturn. This could help provide you with the knowledge and confidence to make better decisions regarding your investments and avoid a decision you later regret.
We specialise in helping expats in Europe get the most from their wealth in the most tax-efficient way, and would be happy to discuss whether investing is right for you. You can get in touch at [email protected] and we’d be happy to help.
This article is for information only. Please do not take action that is based on anything you read in this article until you have sought professional advice.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.