The Peaks & Cliffs of Sharemarkets - Understanding Them is the Key to Long-Term Success

Over recent years, the stock markets in both Australia and the United States have rebounded to reach unprecedented heights. This journey has been marked by significant volatility, beginning with a drastic downturn in 2020 due to the COVID-19 pandemic, which saw global markets plunge by approximately 40%. Remarkably, some markets managed to recoup these losses within just four months—a recovery pace not seen before, especially as it occurred amidst widespread lockdowns and halted international trade.
 
In 2022, the financial world was hit by another downturn, the second in just three years, driven by a surge in inflation not witnessed in four decades. This prompted central banks worldwide to implement the fastest series of interest rate increases in history, leading to a more than 25% fall in stock markets and the worst annual performance for bonds since the 1990s. However, 15 months on, both stock and bond markets have not only recovered but have reached new peaks, with bonds posting significant gains in 2023.
 
These fluctuations underscore the importance of maintaining a consistent investment strategy, sticking to a well-thought-out plan, and seeking appropriate advice during times of market stress. Reflecting on these periods of anxiety and stress reminds us of the resilience and confidence we can build in navigating market volatility.
 
A common concern when markets reach new highs is the potential for overvaluation. Yet, historical data suggests that reaching new highs is a normal part of the market's growth trajectory. An analysis of the S&P 500 over the last century reveals that 30% of monthly closing levels were record highs, with investment returns following these peaks showing similar patterns to those in other periods.

Investing and life are filled with elements beyond our control, but we can manage our reactions to market changes, our savings and spending habits, the risks we undertake, and our strategic planning. Creating a roadmap for success involves rallying support, ignoring negativity, and filtering out distractions.
 
Adopting this mindset is crucial for long-term investment success and achieving a fulfilling life.