PORT VILA, VANUATU / ACCESSWIRE / May 24, 2018 / The term market correction induces reactions ranging from mild worry to outright concern among most stock market participants. However, a relatively small number of investment managers welcome the temporary decline, since it can provide significant long-term benefits. While there have been over 120 market corrections during the last 118 years, a study conducted by the London Business School concluded that $1 invested in 1900 became $300 in 2015 when spread across 23 countries, equaling a 5% annual return. Genesys Fund, an internationally recognized brokerage firm, showcases the advantages of market corrections and explains how they can be beneficial to both active and passive investors.
A market correction, which is commonly defined as a temporary decline in asset values by approximately 10%, can be rewarding for business models primarily focused on delivering positive returns to investors. Despite their short-term underperformance, market corrections represent a counter to many industry challenges including the rising popularity of passive investment strategies, potentially manipulative interventions of a Central Bank and substantially higher asset valuations after a prolonged bull market run, enabling active-oriented investors to take advantage of strategies like reinvesting dividends and rebalancing - selling assets that have risen in value and using the proceeds to buy assets that have fallen in value. According to NY Times, dividends accounted for 5% out of the total 7.9% returns of stocks for the period of 1802-2002. Moreover, one exchange-traded fund (ETF) analysis revealed that, since 1926, the reinvestment of dividends accounted for almost 95% of the total compound returns earned by the companies in the Standard and Poor's Index (S&P) 500 - an index of 505 stocks issued by 500 large companies with market capitalizations of at least $6.1 billion - the leading indicator of U.S. equities.
As noted by Genesys Fund, passive investment strategies have proven themselves to be highly effective throughout 2016. In the light of the benign post-crisis economic backdrop and extensive Central Bank intervention, which led all asset classes to move in a correlated fashion and diminished active investors' ability to capitalize on lower priced stocks, U.S. long-term passive funds attracted $501.8 billion of inflows in contrast to U.S. long-term active funds outflow of $315.2 billion over January to December 2016, with Blackrock and Vanguard - two of the largest players in the passive investment space - reporting impressive $140 billion and $93 billion ETF inflows, respectively. Throughout the history of capitalism, market corrections have happened on a regular basis, yet those with high-risk tolerance tend to succeed in the long haul. As American financier J.P. Morgan once said, "The market will go up and it will go down, but not necessarily in that order."
Genesys Fund is an award-winning brokerage licensed to trade in Forex and commodity-based derivative instruments, and other securities. The firm utilizes MetaTrader 4, the most popular trading platform in the world, and specializes in providing trustworthy information on the latest trends and developing markets to help clients maximize their investments. With clients and partners in countries all over the globe, the company is ideal for investors looking to conceive their own strategies and make informed decisions based on expert advice and the use of the latest trading technologies.
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