Historically speaking, the stock market has produced an annual additional yield of four to six percentage points compared to bank savings. In order to achieve this additional yield, patience and long-term thinking are required, as well as the ability to tolerate at times major fluctuations in the stock markets. When investing in equity funds you can choose between a savings agreement and a one-off investment. Basically, you can expect a higher overall return on a one-off investment compared to a savings agreement – quite simply because you have a larger amount invested in the stock market from day one. A combination is often to be preferred. Many unit holders in ODIN’s equity funds choose to start by making a one-off investment and follow this up with a monthly savings agreement adapted to suit their finances.

Savings agreements – for regular savings
With a savings agreement for an equity fund, you do not have to decide whether it is a good or bad time to buy units – you buy units regularly irrespective of the climate on the stock exchange. Over time, you will experience that the row of new stock exchange records is interrupted by temporary slumps. Such slumps are actually not a disadvantage when you have a savings agreement. If share prices fall from one month to the next, you manage to buy more units for the same monthly savings amount than you would otherwise have done. You benefit from this when the stock exchanges rise once more. The effect is illustrated in the graph on the right.

One-off investments – when you have some extra money
So what about a one-off investment? History shows that very few people – whether professionals or amateurs – manage to hit the stock market’s many troughs – or manage to sell during one of its many peaks. At ODIN, we therefore have the following rule of thumb for when you should invest in equity funds: when you can afford to do so! Forget about speculating in peaks and troughs. The longer the time perspective for your investment, the less the timing of your investment means.

If you have a long enough savings horizon – the Norwegian Mutual Fund Association recommends a minimum of five years – equity funds will very probably produce a better yield than other savings alternatives, even though the funds may fluctuate a lot in value from year to year.

To illustrate the point about long-term thinking, we can take a closer look at the Nordic region index (MSCI Nordic Countries) for the period from 31 December 1969 until 31 December 2007. Of a total of 398 possible five-year periods in the Nordic region (monthly calculations), only 28 periods, or seven per cent, have produced a negative return. All the 374 seven-year periods have produced a positive return!

On average, all the possible five-year savings periods in the Nordic region have produced a 13.9 per cent annual average return. No savings period of 20 years has produced an annual average return of less than 11 per cent. The trend is clear: The longer you save, the more likely it is that you will make money in the stock market. And not least – the longer you save, the less your return is affected by short-term fluctuations.

For the avoidance of doubt: You may of course also obtain a good return on shorter savings periods. Of 434 two-year savings periods in the Nordic region, “only” 81 made a loss, although the fluctuations were much greater.