By Cassie Carstens
1 March, 2025
There’s something special about an old-fashioned roadmap. Those fold-out AA Karoo maps carried a sense of trust, a reliability that has since faded into nostalgia.
As a child, it was my job on long family road trips to study the map and shout directions from the backseat. I never doubted it – many before me had tested and refined the routes on that map.
I firmly believe that the past five years of market events can serve as a roadmap for investors for years to come.
A historic lesson
Investors underestimate just how historically unique and challenging the last five years have been. And honestly, you can’t blame them.
Just like with a modern GPS, we are given multiple route options on our investment journey, especially when obstacles appear, like an accident on the N1.
And yet, investors continue to get lost.
Here are a few key facts from the past five years that – depending on your investment decisions – may have caused you either great joy or significant pain:
- Aside from the 1987 market crash, the March 2020 decline during the COVID-19 lockdowns was the second-fastest ever recorded.
- After the 1987 crash, it took two years for the market to recover to pre-crash levels. The COVID crash recovered in just five months.
- The JSE All Share Index dropped by nearly 35% during the COVID crisis, bottoming out on 20 March 2020.
- The one-year return from that low point was a staggering almost 69%.
- 2022 was the worst year on record for U.S. government bonds, with a dollar return of -13%. This was a significant event since U.S. bonds are considered the world’s safest bonds.
- In contrast, during the same year, South African government bonds (despite junk status) delivered a 4.3% return in rand terms.
- 2022 saw the fastest global interest rate hikes in history, triggering yet another market crash.
- As expected, Tesla’s stock soared by more than 50% in 2021 (investors were in love), plummeted by 65% in 2022 (investors hated it), and then rebounded by 102% in 2023 (investors fell in love again).
- South African investors also had to contend with headlines about the Russian ship Lady R, load shedding, junk status, greylisting, and the violent riots in KwaZulu-Natal that led to billions in damage.
- In 2024, the S&P 500 was more concentrated than ever in its 68-year history, with the 10 largest companies making up nearly 40% of the index.
An island without Wi-Fi
If you had travelled to an island without Wi-Fi at the end of 2019, you wouldn’t have been able to react and withdraw money every time there was a market dip or an alarming news headline.
As a result, your average annual return over the following five years would have been a solid 11.12%.
The graph shows the actual returns of one of my clients’ portfolios as a great example. It had 70% to 80% equity exposure, with 40% to 50% invested in international stocks.
On 23 December 2019, the portfolio was worth R878 392. Over the following five years, it grew by approximately R738,827, reaching nearly R1.62 million.
As comparison, a portfolio that returned inflation plus 5% per year would have grown by R550,757 to R1.43 million, with an average annual return of 9.89%.
An investor in a multi-asset fund with a high exposure to South African stocks would have achieved an average annual return of 8.98%, growing their investment by R490,932 to R1.37 million.
We are not unique
Looking at industry data from the past five years, it has been disheartening to see how many investors repeatedly made poor emotional decisions at the worst possible times – especially during extreme market volatility.
The simple equation is: lifetime returns = market returns (after fees) + investor behaviour (and investor behaviour is often negative).
The reality is that both market crashes and market euphoria will continue to repeat themselves. Sometimes it can be painful for many years.
Investors in 2001 believed that trees could grow to the skies in the midst of the tech-stock boom. But the dotcom bubble burst, and the 10-year return from U.S. stocks ended up close to 0%.
The events of the past five years have been immense, and I believe investors can metaphorically cut out this timeline and keep it in their investment binder – referring back to it whenever the next big crash or unexpected boom arrives.
Investment legends like Warren Buffett, Benjamin Graham, Howard Marks, Peter Lynch, and John Bogle all developed and refined their own investment roadmaps and we can learn a lot about how they lived up to this in difficult times.
One of the biggest mistakes we make is believing that our fears and reactions are unique. The truth is, Paddy and Mary in Ireland are just as worried about retiring comfortably as you are – while juggling the costs of raising three kids, paying a mortgage, and dealing with job uncertainty.
Our circumstances may be different, but our universal fear of uncertainty is shared by billions around the world. And when a market crash happens on top of life’s usual stresses, it can be just enough to push us into making one catastrophically bad financial decision.
As Benjamin Graham famously said, “The goal of investing is not to outsmart others at their game, but rather to beat yourself at your own game.”
Three key questions
If you can use the past five years to master many of the key investment principles and build a roadmap to serve as the first line of defence for the financial years to come, then it leads you to the next, far more important, three questions.
We believe there are three universal financial questions that all investors, individuals and families have:
- Will we be okay if we die or can no longer work?
- Will we be okay if we live a long life?
- How do we balance saving, spending, and giving between these two unknown points in time?
This is where the value of financial planning comes in, to provide context around the three questions and have a proper financial plan (a roadmap).
The problem is that our feelings about our investment returns and a fixation on something like our quarterly statement return or the next political headline constantly interfere with our ability to think clearly about these three fundamental questions.
In a perfect world, our hope is that investors have a roadmap they can trust, which in turn leads to greater life and financial satisfaction, as well as spending time on what truly creates happiness.
Cassie Carstens is a certified financial planner at Woodland Wealth. Contact him at info@woodlandwealth.co.za.
Although all possible care has been taken in the preparation of this document, the factual correctness of the information contained herein cannot be guaranteed. This document does not constitute advice and anyone who intends to take any financial action based on this document is strongly advised to first consult with his/her personal financial advisor. Woodland Wealth is an authorized financial service provider with FSP no. 5966.