https://www.ft.com/content/32f21620-f378-11e6-8758-6876151821a6
What does the chart tell us? It shows that trying to second guess the market is a mug's game. If you had been out of the FTSE All-Share index for 10 of the best-performing days over the past 20 years, you would have lost 170 per cent of your returns. In times of volatility, this shows how investors should "keep calm and stick to the plan", says Rory McPherson, head of investment strategy at Psigma Investment Management. Indeed, as the chart shows, if you had missed the 30 best-performing days, then your investments would have lost money over the period — as opposed to almost tripling it over 20 years. But how will I know when to enter or leave the market at any point? Part of the problem is investors trying to be "too clever", Mr McPherson points out. "Past success can be a curse here as these types of investors have often had some early success at timing the market; or at least they think they have." The point is not to get spooked by short-term movements, whether that is Brexit — when the UK markets plummeted and rebounded relatively quickly — or the election of Donald Trump, when US indices bucked expectations and have gone on to break new highs. Mr Trump offers a case in point: if investors had been out of the market, they would have missed what has so far been a remarkably sustained rally. Howard Marks, co-chairman of Oaktree Capital, a fund manager for St James's Place, advises caution on the US, but adds: "There is no doubt in my mind that [Trump] intends to be a pro-business president . . . We are trying to be fully invested where we can." So should I just ignore active fund management altogether and put my money in a tracker? The chart would suggest that the answer is yes — and the actions of individual investors support this. Recent reports suggest that the passive investment market in the US will outstrip active investing in terms of funds under management by 2024. In the UK, however, the jury is still out. In 2015-16, 74 per cent of the estimated £6.7tn of assets in the UK were still actively managed, according to figures from the Investment Association. Passive investing grew by one percentage point over the 12-month period, but remained low at 23 per cent. In the UK, at least, we still trust our fund managers to gauge the markets for us. This might hold true for developed markets, but what about emerging markets? It was obvious that Mexico would suffer post-Trump, for example. True, but the point is that while investors might be insulated against the downturn, they will also miss any bounceback. The UK markets offer a salutary lesson. In the immediate aftermath of the referendum vote on June 23 last year, the FTSE 100 fell by more than 4 per cent, yet seven days later it actually closed higher than the previous week's close. Baron Rothschild, an 18th century member of the Rothschild banking family, is famously quoted as saying: "The time to buy is when there is blood on the streets." But while that might suit contrarian investors armed with stock reports and analyses, it is not appropriate for someone looking to maximise their pension. Telling clients to keep calm are "words we find ourselves politely saying to our clients and advisers almost each and every time that drama unfolds in the market", says Mr McPherson at Psigma. "It tends to be in response to panic-inducing alarmist headlines telling us to 'sell everything' and that the world's about to end." In other words, the chart offers a simple message in this increasingly uncertain and volatile world: don't panic.
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