Analysis of how much fluctuation one must be aware of when investing in stock funds
The A-share market is famous for its large volatility. Many new investors who invest in the A-share market are aware of this characteristic of the A-share market. Not specific or profound. The editor here has compiled the awareness of how much fluctuation you need to bear when investing in stock funds for your reference. I hope you will gain something from the reading process!
The natural year drawdown statistics of the three major broad-based indexes
When investing in index funds and partial stock funds in the A-share market, how much retracement should we tolerate when investing?
I have calculated the stock prices of Shanghai and Shenzhen from 2010 to the present. 300, CSI 500, and ChiNext refer to the largest declines in the history of the three major indexes. The largest decline here means the downside space from the highest point of the year to the lowest point of the year.
From the statistical results, when investing in A-share index funds or partial stock funds, you need to be prepared to withstand at least a 20% periodic decline in every natural year.
Since 2010, statistics on the maximum natural year drawdowns of the three major broad-based indexes and bond investment instruments
In general, the blue-chip index represented by the CSI 300 has The volatility is slightly smaller than that of the CSI 500 and GEM Index.
In the past 11 years, the CSI 300 Index has experienced a maximum retracement of more than 20% in seven years. Among them, during the stock market crash after the bull market collapsed in 2015, the maximum range retracement exceeded 40%.
In the past 11 years, the maximum drawdown of the CSI 300 Index did not exceed 10% in only two years. They occurred in 2014, the starting point of the 2014-15 bull market, and in 2017, when the slow bull market lasted throughout the year.
In the rebound-shock market in 2019 and the great turmoil in 2020, the maximum retracement of the Shanghai and Shenzhen 300 Index during the year was also about 15%.
Looking at the maximum drawdowns of the CSI 500 and the GEM Index during the year, in the 11 years since 2010, the maximum declines of the CSI 500 and the GEM Index have been greater than 10%. Except for 2013, the maximum retracement data of the CSI 500 and GEM Index in many natural years are almost greater than those of the CSI 300 Index.
Natural year drawdown of bond investment targets
I also calculated the maximum natural year drawdown of bond investment instruments. Judging from the situation of pure bond index funds, investing in pure bonds It is normal to endure a maximum downside of 2%-3% during the year. Secondary debt funds are allowed to invest up to 20% of stocks and convertible bonds, and their fluctuations will be greater.
Awareness and Cognition
If you want to strengthen your belief in long-term investment, you must learn to accept the fluctuations of the market, and do not fantasize about only enjoying the rise and avoiding the fall. Except for the decline in the 2015 stock market crash, it is difficult for us to predict most other declines. There is no better solution except to choose to accept it.
In the falling market, the floating profit of the investment account shrinks or even the floating loss of the principal, which makes investors very disgusted. But have investors thought carefully about long-term investment? What will I get if I completely withstand the decline? Long-term investment gets income. That is to say, I stay in it regardless of the ups and downs, and what I ultimately gain is the long-term return of this asset during this period.
The drop when the huge bull market bubble bursts will cause permanent loss of principal. For this kind of drop, we can exit on the left side through common sense and valuation, or we can exit on the right side according to the principles of trading. But when the market valuation falls in a range that is neither high nor low, or even undervalued, we'd better not try to avoid it completely. Even if we want to hide temporarily, we must think clearly at what price we must buy it back.
From the long-term statistical probability, the probability of daily rise and fall is roughly the same, and the probability of rise is slightly greater than the probability of fall. According to the common sense of profit and loss coming from the same source, the probability of avoiding a decline may be about the same as that of avoiding a rise. Hand the microphone to the investors who tried to evade 10-20% in 2014, and ask them how it feels to miss the early bull market without warning?
Of course, maybe not all investors can Tolerate a potential decline of around 20% per calendar year. Based on this, ordinary investors should learn the most basic asset allocation of stocks and bonds, and use investment in bond assets to smooth out the overall fluctuations in the portfolio.
Invest with awareness. When bad market conditions occur, we will not lose control emotionally because we are cognitively and psychologically prepared. Controlling your emotions is a prerequisite for successful investment.
In the past two years, the returns of funds purchased by many investors have generally been unsatisfactory. What caused the substantial losses of most funds? Regarding these questions from investors, Li Ying, an analyst at the Shanghai Securities Fund Evaluation Center, pointed out , First of all, the fund product is essentially a basket of securities investment portfolios, and the fund's return performance is inseparable from the performance of the underlying underlying market. In the market environment where the stock market continues to decline, it is difficult for stock funds, hybrid funds, etc. that mainly invest in stocks to achieve positive returns. When the stock market rises, most equity funds tend to achieve positive returns. Therefore, it is impossible for the fund to create a myth and create high positive returns under the continuous market decline in recent years.