When it comes to investing in shares, it is often said that time is your ally.
The data shows that investing small amounts consistently over time, holding onto your investments for the long term, and riding out the market's ups and downs can produce a healthy return.
Over the past two decades, the top 500 US companies averaged a 10% annual return, and Australia’s S&P ASX All Ordinaries Index recorded an average annual return of 9.2%.
These returns have been delivered, despite various unforeseen events that decreased markets, including the dot-com bubble crash, the Global Financial Crisis, and the effects of COVID-19.
It requires determination to stay invested while markets are falling. The best approach may be to disregard the excitement and filter out the distractions.
It may be wise to avoid constantly checking prices, as this could increase apprehension about your portfolio. Take the most recent brief impact on investor confidence during the mid-2024 Microsoft outage.
The market goes through endless changing cycles. Most cycles follow a pattern of an early upswing after the market has bottomed out, followed by a bull market when investor confidence is strong, and prices are rising faster than average. Then, the market then reaches its peak as prices stabilise, before negative investor sentiment declines the market. Finally, the bottom of the cycle is reached as prices reach their lowest point.
Certain seasonal market cycles may be helpful in buying and selling decisions. There are however always exceptions.
In Australia, April, July, and December are the strongest months on the All Ordinaries Index. But these patterns have somewhat weakened over time, with lower average gains in April, July, and December more recently. Performance is usually at its lowest in June.
November and April have been the strongest months for US shares for the past 30 years, with average monthly gains of 1.9% and 1.6% respectively.
The Magnificent Seven
The performance of Nvidia and the Magnificent Seven is a real-time lesson in market dynamics and cycles. The Magnificent Seven stocks – Nvidia, Alphabet, Microsoft, Apple, Meta, Amazon, and Tesla – returned more than 106% in 2023 alone.
Despite the rise and fall of the Magnificent Seven US technology stocks in the past 18 months, their price patterns have followed seasonal cycles.
In the first half of 2024, their prices rose around 33% on the US S&P 500 index, while the rest of the index increased by only 5%.
In recent months, another story has emerged; The Magnificent 7 has become the Magnificent 3, thanks to intense excitement around artificial intelligence (AI).
Nvidia, Alphabet and Microsoft leapt into the lead on the index, doubling the performance of the other four.
Nvidia has been the market's highlight, with its price almost tripling in 12 months. However, prices have been unpredictable at times. A correction in June moved the company from the biggest in the world, a title it held briefly before declining, to number three after Microsoft and Apple.
Some describe the activity as a bubble that was due to burst. Others say the Magnificent 7 stocks are undervalued and have further to go.
Regardless of the situation, it is important to stay vigilant and avoid being swayed by the excitement around quickly escalating prices.
Maintaining a composed mindset and investing time to comprehend your investments and their associated risks will aid in staying committed to your long-term investment objectives.
Next steps
Connect with your true potential by speaking with your local Nexia Adviser to discuss your investment portfolio and navigate towards your long-term investment goals.
