cart icon

Shares globally have generated an average negative total return of –8.8% so far this year in sterling terms, while bonds have returned –8.4% on average1.

Investors are challenged with how to respond – if at all – to both the simultaneous fall in shares and bonds and muted expectations for market performance. Beyond disappointing short-term returns and a spike in volatility, investors face soaring inflation across most developed economies; the prospect of the end of a long era of ‘easy-money’ central bank policies; the war in Ukraine; and the effects of the Covid-19 pandemic, including economy-disrupting shutdowns in China.

To cap off an already volatile period, the Federal Reserve (Fed) and Bank of England each raised their respective interest rates last week.

These economic and market woes might tempt some investors to withdraw from markets and go to cash, but that would be almost ensuring a negative return when taking into account the corrosive effects of inflation. As the chart below illustrates, the chances of a negative real return are much lower for shares and bonds compared with cash, particularly as the holding period gets longer.

Note that our research is based on US data, but the broad findings we draw from it generally hold across markets – that riding out the rough periods can pay off.

Historical probability of negative return for various holding periods

Past performance is no guarantee of future returns. The performance of an index is not an exact representation of any particular investment, as you cannot invest directly in an index2.
Sources: Vanguard calculations. Data between 1 January 1935 to 31 December 2021.

Another reason for clients to stay invested and not time the market is that, historically, the best and worst trading days have come close together, making it difficult to avoid one without the other. Last week was a perfect example of that, with US share prices surging on the day of the Fed’s rate-hike announcement, followed by a plunge the next day.

Remember also that some of the best trading days have occurred during periods of long market downturns, as shown in the chart below. Missing those key trading days lowers long-term returns.

Again, please note, that the returns data shown below only cover the 500 biggest listed companies in the United States and is in US dollar terms. However, the US market accounts for well over half the world’s shares by value and it’s a similar picture in other currencies.

S&P 500 Index daily returns

Past performance is no guarantee of future returns. Sources: Vanguard calculations, based on data from Refinitiv using the Standard & Poor’s 500 Price Index. Data between 1 January 1980 to 31 December 2021.

The bottom line for investors is that sticking to your long-term investment strategy may be the best route to investment success.

Historically, investors with patience and a long-term perspective would have benefitted more from staying the course than trying to time the market when things get choppy.


1 Vanguard calculations as of 9 May 2022 using the FTSE Global All Cap Index as a proxy for global share markets, including developed and emerging markets, with dividends reinvested. Bonds are represented by the Bloomberg Global Aggregate Float-Adjusted Composite Index, which includes fixed-rate treasury, government-related, corporate, and securitised bonds from developed and emerging markets issuers with maturities of more than one year. Returns are in sterling.

2 Chart notes: Returns calculated in US dollars and do not incorporate the reinvestment of income or dividends. When adjusted for inflation, US Treasury bills are more likely than stocks to have negative returns. A 60/40 shares/bonds portfolio has 36% less volatility than a 100% shares portfolio. Rolling return periods are based on quarterly return data. Nominal value is the value expressed in money of the day, while real value includes the effect of inflation. When determining which index to use and for what period, we selected the index that we deemed to be a fair representation of the characteristics of the referenced market, given the information currently available. For stock returns, we use the Standard & Poor’s (S&P) 90 Index from 1935 to 3 March 1957, the S&P 500 Index from 4 March 1957 to 31 December 1974, the Wilshire 5000 Index from 1 January 1975 to 22 April 2005, the MSCI US Broad Market Index from 23 April 2005 to 2 June 2013, and the CRSP US Total Market Index thereafter. For bond returns, we use the S&P High Grade Corporate Index from 1935 to 1968, the Citigroup High Grade Index from 1969 to 1972, the Lehman Brothers U.S. Long Credit AA Index from 1973 to 1975, the Bloomberg U.S. Aggregate Bond Index from 1976 to 2009, and the Bloomberg U.S. Aggregate Float Adjusted Bond Index thereafter. For Treasury bill returns, we used the Ibbotson 1-Month Treasury Bill Index from 1935 to 1977, and the FTSE 3-Month Treasury Bill Index thereafter.

Investment risk information

The value of investments, and the income from them, may fall or rise and investors may get back less than they invested.

Important information

If you have any questions related to your investment decision or the suitability or appropriateness for you of the product[s] described in this article, please contact your financial adviser.

This article is designed for use by, and is directed only at, persons resident in the UK.

The information contained in this article is not to be regarded as an offer to buy or sell or the solicitation of any offer to buy or sell securities in any jurisdiction where such an offer or solicitation is against the law, or to anyone to whom it is unlawful to make such an offer or solicitation, or if the person making the offer or solicitation is not qualified to do so.  The information in this article does not constitute legal, tax, or investment advice. You must not, therefore, rely on the content of this article when making any investment decisions.

Issued by Vanguard Asset Management Limited, which is authorised and regulated in the UK by the Financial Conduct Authority.

© 2022 Vanguard Asset Management Limited. All rights reserved.