Financial Planning Fridays #124: Investing Before a Global Crisis

Hi Friends,

This week, we want to address a fear that many of us share: making investments right before the start of a global crisis. It’s a daunting thought, isn’t it? But let’s take a closer look together to see if it’s something we truly need to fear.

To explore this, I studied seven major events that profoundly impacted the world. These include economic downturns, wars, and other crises that many might consider the worst possible times to invest:

It’s a grim list, no doubt. But what happens if someone made an investment at the start of these events? I looked at this in two ways:

  1. A lump-sum investment made on January 1st of the crisis year.
  2. A consistent monthly investment starting January 1st of the same year.

Let’s start with the 5-year results.

The worst-case scenario occurred during the Great Depression, where a lump-sum investment saw an average annual loss of 10.5% over five years. However, if you continued investing consistently every month during that same period, you would have actually achieved a positive return of about 1% per year.

Looking at all seven crises, 5 of the 7 resulted in positive returns over five years, with an average annual return of 4.14% for lump-sum investments. That’s not bad, especially considering the magnitude of these events!

What’s even more striking is the power of consistent monthly investments. By continuing to invest each month, the average annual return more than doubles to over 9%!

Now, what happens if you extend your investment horizon to 10 years?

The only negative 10-year result was the lump-sum investment at the start of the Great Depression, with an annual loss of just over 1%. However, every other scenario produced positive returns, with average annual gains of 7.65% for lump-sum investments and 10.35% for consistent monthly investments.

So, what can we learn from this?

Even if you invest at what feels like the absolute worst time, history shows us that patience pays off. Almost any time period in the stock market, when approached with a long-term mindset, has rewarded investors with solid returns.

We can’t predict the next major crisis, but based on the historical ones we just reviewed, I’m confident that staying the course and continuing to invest—regardless of market and global conditions—will lead to rewarding outcomes over time.

Thank you and we look forward to talking with you next Friday! 

Be on the lookout for our next Financial Planning Fridays episode. Subscribe to our Youtube Channel so you never miss an episode. Or contact us directly; schedule your 15-minute call with us today.