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Why Downturns can be Opportunities

July 19, 2022
Easy Equities
Investments

Since 1926, the S&P 500 (The top 500 businesses in America) have returned an average of roughly 10% returns per year. During that time, there have been several market crashes. One thing that this proves is that for every market crash, there is a market recovery. Market crashes, recessions, depressions, and corrections are inevitable. Figure 1 shows how the market generally goes up over time despite there being many downturns along the way. Notice how the market always recovers and reaches a new all-time high.



Downturns can be opportunities

The best opportunities are where no investors want to look: in market declines. Stock prices are always moving up and down. It is completely normal. It is important to know that when the market declines, you only lose money if you sell. Not all stocks are guaranteed to recover after downturns, but major indices such as the S&P 500, MSCI World, Nasdaq 100, and JSE Top 40 tend to always recover since they track an index.

Time is your greatest asset

At EasyEquities, we believe that time is your greatest asset. If we have not already proved this, maybe this example will show you why we believe this notion:

If you invest R5 000 a year starting at age 30 with an average of 10.75% annual returns, you will have R948 604,00 by the time you turn 60 years old. If you choose to start 10 years earlier starting at the age of 20, then by the time you turn 60, you will have R2 716 043,00.

That is the power of compound interest. Compound interest works best exponentially over time.

TIME IN the market always beats TIMING the market, therefore investing is a long-term commitment.

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