How do you move the odds in your favour when investing?

Spoiler alert, the answer is to keep invested!

The FTSE 100 is the flagship index for UK equities, as it is composed of the 100 largest companies that trade on the London Stock Exchange.

The index was launched in January 1984. In the 38 years that it has been running it has generated a gain of over 620%. If dividends received are included, the total gain rises to over 2,700%, equivalent to an annual gain of over 9%.

However, when we look at the daily total returns of the FTSE 100, we see that it only produces a positive return on 51% of days, meaning it is essentially a toss of a coin whether the index makes a gain on any particular day.

It is a similar story for US equities, which have outperformed their UK counterparts in the period since the FTSE was launched. The S&P 500 Index of US stocks has risen by close to 12% per year, yet it has registered a gain on less than 53% of days.

When we look at all rolling five-day periods for the FTSE since launch, the outcome is a little better. The odds of making a gain rises to above 56%. This still means that more than four times out of the ten the index will make a loss over a week.

However, when we extend the time horizon, we see the odds of making a gain significantly improve.

Source: Refinitiv Eikon

Over all one-year periods, the chances of making a gain rise to over 74%. Over five years we see that the FTSE 100 has made a positive return 89% of times, and the odds of success rise to close to 98% over ten years

There has never been a 15-year period when the FTSE 100 has failed to make a positive return. In fact, there has never been a 12-year period when the index has ended in the red.

Over the life of the FTSE 100 it has needed to deal with a global pandemic, a global financial crisis, the bursting of the dotcom bubble, as well as Black Monday in 1987 when stocks fell 23% in only two days. Yet over all fifteen-year periods we see that the worst return is 50%, with the best return being 728%.

Source: Refinitiv Eikon

When stock market volatility is relatively high, as is currently the case, it is tempting to think it is safer to not be invested and to wait on the sidelines until things have calmed down.

However, history shows us that when investing in the stock market, time is truly our biggest asset, and the longer you invest the greater your odds of success.

Mike Evans – Head of Portfolio Management