242) SARS Crisis Effect on Equity & Bond Funds

242) SARS Crisis Effect on Equity & Bond Funds

Do you know what happened to the Stock Market and Bonds during the SARS Crisis from Apr 2002 to Mar 2003? 
What happened after the Crisis was over?

Let's look at the details to learn lessons from the past.

Below is an example of Equity fund and the benchmark KLCI performance during SARS.

The SARS crisis happened from 23 Apr 2002 to 11 Mar 2003 for 322 days (less than 1 year).
The Equity Fund dropped 16%, while KLCI dropped 23%.

Now, let's look at the graph below of same fund after the crisis was over.

After the SARS crisis, the stock market increased from 11 Mar 2003 to 11 Jan 2008 for 1767 days (4.8 years).
The same Equity Fund increased 175%, while KLCI increased 144%.

Now, let's look at the graph below of combined period from 23 Apr 2002 to 11 Jan 2008. It was the period of SARS start to end of the market growth.

The Equity fund dropped, rebound back and still gave 131% returns, while KLCI gave 87%.

Now, let's compare the performance of a Bond Fund.

During the SARS crisis, the Bond Fund still increased 7%, while the 12 Months Fixed Deposit value increased 3.5%.

Now, let's look at the graph below of same fund after the SARS Crisis was over.

After the SARS crisis, the Bond Fund still increased another 33%, while the 12 Months Fixed Deposit value increased another 19% from 11 Mar 2003 to 11 Jan 2008 for 1767 days (4.8 years).

Now, let's look at the graph below of combined period from 23 Apr 2002 to 11 Jan 2008. It was the period of SARS start to end of stock market growth.

The Bond Fund total increased 43%, while the 12 Months Fixed Deposit value increased 23%.

Comparison:

1) During SARS Crisis, the Equity Fund dropped 16%, while the Bond Fund increased 7%.

2) After SARS Crisis, the Equity Fund increased 175%, while the Bond Fund increased only another 33%. The Equity Fund gave much higher returns than Bond Fund. An Investor who had invested at the lowest point would have made a very good return.

3) During & after SARS Crisis, the Equity Fund increased 131%, while the Bond Fund increased 43%. An investor that had bought just before SARS, stay invested until the Crisis was over and continued to stay invested would still made a good return.

4) The Bond Fund continued to increase in value with more stable performance while the Equity Fund was more volatile with bigger ups and downs.

Conclusion:

1) Stay Invested for the Long Term until your financial objective is achieved.
2) Understand that Equity Fund is more volatile, so stay calm.
3) Equity Fund has Higher Volatility (Risk) vs Bond Fund. However, higher Risk gives higher Returns in the long term.
4) Diversify your portfolio to balance the Risk and Returns.


For more related articles:

227) Why You Should Think Twice Before Selling That Losing Unit Trust Funds
https://highlevelrules.blogspot.com/2019/06/227-why-you-should-think-twice-before.html

Trader vs Investor
http://highlevelrules.blogspot.com/2018/07/trader-vs-investor.html


Time In vs Timing the Market
http://highlevelrules.blogspot.com/2017/10/time-in-vs-timing-market_24.html


Price Top & Bottom Cycle
http://highlevelrules.blogspot.com/2018/08/price-top-bottom-cycle.html