Data shows that the Alsi is experiencing low return levels similar to those seen on five previous occasions over the past 40 years.
Although poor returns are a bitter pill to swallow for any investor, they are by no means an anomaly. It is more important to reflect on the subsequent returns the Alsi generated after each of the previous “worst-return” periods.
The red circles on the graph highlight the lowest rolling five-year annualised returns generated by the Alsi since 1979. The graphs also illustrates that these “severe” declines were followed by a drastic upsurge in returns. For example, after the market dropped in April 2003, subsequent returns jumped as much as 41.09 percent. After Alsi’s drop in March 1979, it subsequently rose by about 15 percent.
On average, the Alsi rose by more than 24 percent every time the market reported depressed returns over these five periods - exceptional returns that would easily have been lost if investors had given in to the urge to switch and invest elsewhere. Those who remained invested were rewarded with attractive returns in the aftermath.