January 2025 Insights
AW constantly monitors the investment markets and aims to keep our valued clients regularly informed and updated. We aim to help investors cut through all the media noise and hype and understand what is really driving investment markets and portfolio returns.
In this edition, we cover:
How often do we experience a share market pullback?
Over the past 12 months, the USA S&P 500 increased over 24%, meanwhile, the Australian S&P 200 has risen a more modest 7%. All in all, 2024 was a very good year for share markets. Share markets give the best investment returns over time (on average around 11% per annum) however they are volatile in nature going up and down every day. Investors often find share market falls or ‘pullbacks’ unsettling, as the historical data shows, these fluctuations are a normal part of the investment journey.
The chart below, illustrates how often the USA share market (S&P 500 Index) has experienced a share market pullback of more than 5% each calendar year. The average is 5 times a year you can expect the market to fall over 5%, however the past two years have been historically low with only 3 pullbacks in 2023 and 2 in 2024. We expect that 2025 will be more normal and you can expect 4-5 share market pullbacks this year however we still expect good positive investment outcomes.
Why Market Pullbacks Are Normal
Share market pullbacks are a natural response to various factors, including economic news, geopolitical events, changes in interest rates, and investor sentiment. These fluctuations are part of the market’s inherent volatility and history shows that they are temporary. This is a key point for investors to understand: short-term volatility does not determine long-term success. Staying invested and avoiding emotional reactions to pullbacks is essential for achieving financial goals.
Share market pullbacks create opportunities to buy quality investments at lower prices. For long-term investors, these periods can be a chance to enter the market or add to existing positions at a discount. Pullbacks also test the resilience of an investment portfolio. They highlight the importance of diversification and proper asset allocation, helping investors and advisors make adjustments to manage risk effectively. Experiencing pullbacks teaches investors to manage their emotions, reinforcing the importance of staying the course.
Share market pullbacks are a reminder that short-term pain can lead to long-term gain.
Any advice contained in this insight/update is general advice only and does not take into consideration the reader’s personal circumstances. To avoid making a decision not appropriate to you, the content should not be relied upon or act as a substitute for receiving financial advice suitable to your circumstances. When considering a financial product please consider the Product Disclosure Statement. Aspirations Wealth Group is a Corporate Authorised Representative of Aspirations Private Wealth Pty Limited. ABN 57 622 182 076 – AFSL 503889.