The headline may seem a little strange in light of the sharp fall in the
market which we have had to cope with. But actually it is the case that all
those who save for the long-term in a savings agreement benefit from the
market declining now and then – even though it is an unpleasant experience
when it happens.
More units when the market declines
When share prices fall from one month to the next, you are in practice able
to buy more units for the same monthly savings amount than you would
otherwise have done. You benefit a lot from these ”extra” units when share
prices rise once more. To illustrate the point, we can use a numerical
example we have used several times before.
Imagine that you have an agreement to save 100 Euro each month. The fund’s unit value is 20 the first month and 15 the next. You buy units for the same amount in both months. What is the average unit price? The quick answer is 17.5. But since you buy more units when the price is low, the average price is 17.14. When the unit value is 20, you buy five units, and correspondingly you buy 6.67 units when the unit value is 15. (The average price = 200 divided by 11.67 units = 17.14.)
The value of saving …
In the table, we have calculated how a savings agreement for 100 Euro per
month has developed in those of ODIN’s equity funds that have at least a
10-year history of own management. The developments are affected by the
manager’s skill, general market developments and the savings agreement
effect. Note that the funds have different starting-up dates – which affects
what you have saved and what you are now left with in Euro.
At ODIN Norden, savings of a total of 22 600 Euro would have grown to 62 294 under the savings agreement. If you had chosen to put the money in the bank (3 month LIBOR), the savings would have grown to 33 223. If you had invested like the fund’s benchmark (the market in which the fund operates), the savings would have grown to 41 842.
The difference between saving in a bank and in ODIN’s equity fund illustrates the effect of saving regularly in equity funds in both good and bad times. The difference between the index and our equity funds shows the added return that ODIN has created over time on the unit holders’ behalf.
