Over the last month, both the S&P/ASX 200 (ASX: XJO) and the S&P 500 have suffered sell-offs related to tariff fears and uncertainty. So, should you be worried?
Or is there just a bit of perspective needed?
A quick note
I don’t know if the market sell-off is done yet. No one does.
The market could continue falling after this article is posted, or it could recover, but that’s not really the point.
The point is that when you’re taking a long-term view of your investment portfolio, you don’t need to be panicked by short-term changes in the market. So, let’s get to the numbers.
The market sell-off
The ASX 200 peaked on February 14th, with the market losing about 9% since that date.
A few days later on February 19th the S&P 500 sell-off began, and has so far led to an 8.9% drop. For many investors, that likely means that thousands of dollars are suddenly ‘missing’ from your portfolio. That can be a bit scary if you haven’t seen a market sell-off before.
But, let’s step back a bit.
The ASX 200 has not been at a level this low since… August 2024.
The S&P 500 was last at this level in September 2024, so realistically this sell-off has wiped out around 6 months’ worth of gains. Not ideal, but also not really unexpected.
See, since 1980, the S&P 500 has fallen 10% or more on average every 1.2 years.
In other words, what we’ve seen over the last month is… pretty normal, at least from a historical perspective.
What about a longer-term view?
What happens if we go back 12 months? Where would that put us?
Well, over the last 12 months, the ASX 200 has risen only around 0.75%. But remember, these numbers don’t include dividends. So, if you’ve been invested in the ASX 200 over the last 12 months, you haven’t really seen any price change, but you would’ve received 3-4% in dividends, plus any franking credits you’re entitled to.
The S&P 500 has fared even better. Since March 12th 2024, the S&P 500 has returned just over 8%. And that’s after the 8.9% decline we’ve had over the last month.
Another way of looking at it is that last year’s returns were quite a bit higher than average, and with the recent sell-off, the market is reverting to the mean, or returning closer to its average return.
Finally, let’s go back a few more years. After all, we would always say that if you’re investing in the share market you should have a timeframe of at least 3 years, more likely 5+ years.
Over the last 5 years, the ASX 200 has returned over 40% (excluding dividends), and the S&P 500 has more than doubled.
Should you be worried?
Short answer, I don’t think so.
As I mentioned at the start, the market may still have further to fall but the principles still apply. If you view the sharemarket as a long-term wealth builder and you’re able to look past the day-to-day volatility, you’ll see that nothing has really changed.
I was happy to be investing 6 months ago, I’m happy to be investing now, and I’ll be happy keep investing in 12 months’ time, because I’m not focused on my monthly or quarterly returns. I’m focused on building long-term wealth the slow and boring way.
