The first 3 months of 2018 have been dismal for returns, with low or even negative returns in some cases. This may concern you and prompt you to contact your adviser. However, keeping focused on long term outcomes is paramount even when at first glance your short-term returns do not appear reasonable.


Take the JSE All Share (ALSI) for example, which has experienced two market declines recently in 2018, illustrated in the circle on the graph below, the first towards the end of January where the ALSI dropped by around 9% and the second where it dropped by almost 7%, which was driven by volatility in global financial markets. The ALSI has declined by 2% from the beginning of the year to the end of April, after it gained 17% last year.



If we look at the JSE over a 10-year period, this return still includes the 2008/9 financial crisis, with the starting point, just before the start of the crisis. The green line illustrates the straight-line average from a point 10 years ago to the end of April 2018, which is an average return per year of 6.6% over the past 10 years, therefore long-term returns are “perceived to have below average gains”.


If we look at the JSE over a 9-year period (illustrated by the red line) the picture is very different as the return is calculated using a lower starting point after the financial crisis. The average return per year over the last 9 years now increases to 12.2%.


Similarly, the 3 years of flat performance as illustrated between the 2 black lines will affect the returns in the same way and give the impression of no growth, when looked at in isolation.


It is evident that the 2008 financial crisis does skew our perceived idea of returns and in months to come, without any growth in the JSE, we will see some swift increases in long term return figures, simply because of the change in starting point. It is our job to keep you focused on your long-term objectives, preventing you from any knee jerk reactions which would be based upon misleading numbers.


Look out for part 2 of this series explaining more about how statistics can be misleading.