Investment Association data shows the amount of money taken out of investment funds in 2022 exceeds the financial crisis.
Data from the Investment Association (IA) today illustrates that £25.7 billion was withdrawn from funds in 2022, the first ever annual outflow of money, with the next worse year coming in 2008 when only £4.2 billion was added to funds.
Dzmitry Lipski, Head of Funds Research, interactive investor, says: “There were few places for investors to hide last year, with bonds falling along with shares and an all-round difficult year book ended with major political and economic turbulence.
“But nor should we look at the past year in isolation, because it comes after a roller coaster three years of social, emotional, economic and market turbulence – we are living in an age of uncertainty.
“The new year bounce has shown how quickly sentiment can change, and some of last years outflows may already be working their way back into markets. There are no guarantees, but history shows us that the best years can often follow the worse. It’s so important to try to get out of the habit of buying high and selling low. One of the best ways to deal with volatile markets is to invest on a monthly basis, smoothing out some of the highs and lows in the price of shares.”
Regular investing data
Regular investing is available from £25 per month on interactive investor and in January 2020 the investment platform made it free for investment trusts, funds, ETFs and popular UK shares. Of course the three years since have been exceptionally volatile, and regular investing would have helped investors take a more long-term approach to this tumultuous period in time.
Regular investing smooths out some of the highs and lows in the price of shares, because investors buy fewer shares when markets are high and more when prices are low (known as pound-cost averaging). It takes away at least some of the risk of market timing.
The disadvantage is that over the long term, markets have risen and so lump sum investing means you have more money being put to work for longer.
How did regular investors fared versus lump sum investors during the Global Financial Crisis?
ii looked at how regular investors, putting away £50 a month, fared against lump sum investors during the Global Financial Crisis.
According to ii data, looking at the FTSE World Index, investors who invested a lump sum of £800 at the start of the Global Financial Crisis (in a fund replicating this index performance) between 1 October 2007 – 28 February 2009 would have seen their investment shrink to £545 by the end of the period. Those who drip fed that £800 investment on a monthly basis, in £50 per month instalments, would have still seen their investment shrink – but not as much – to £646.80.
For investors who held on for the long term, investing from 1 October 2007 to 31 December 2022, it is lump sum investors who would have performed the best, because more of their money is being put to work in the stock market for longer. But they would have done so with a higher risk profile. A lump sum investment since the start of the financial crisis until 31 December 2022 (£9,150) in a fund exactly replicating the FTSE World has grown to £34,967, compared to the £22,701 equivalent drip fed into markets on a monthly basis, in £50 per month instalments.
The FTSE 100 has massively underperformed the FTSE World since the start of the financial crisis, but the regular investing principle during that bumpy phase for markets would still have lowered your risk profile. Regular investors who put away £50 a month from the start of the Global Financial Crisis (on 1 October 2007) until 28 February 2009 (an investment of £800) would have had £617.90 compared to £501.60 if the investment had been made as a £800 lump sum at the start of the period.
Regular investors who put away £50 a month from the start of the Global Financial Crisis (on 1 October 2007) until 31 December 2022 would be looking at an investment worth around £15,089. Those who invested the equivalent lump sum (£9,150) at the start of the period, and held their nerve, would have made £18,762.
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Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.