As Asia’s leading asset manager, Samsung Asset Management advocates for the importance and
benefits of clients to create an investment culture
that is aligned with our philosophy of "Successful Investing Experince for All Clients".
In the US, prices have increased thirteenfold over 90 years due to inflation. During the equivalent time frame, risk-free assets including Treasury Bills provided returns of over twentyfold while risky asset including small cap index yielded returns of 16,743 times.
In Korea, investments for both the private and public pensions are focused on bank deposits accounting for 60% while funds only for 16% of the total amount. (US : bank deposit 10%, funds 46%) The fund market has high growth potential in terms of demand.
We begin by looking at the historical daily returns of S&P 500, the representative stock index for dollar cost averaging in the US, and KOSPI in Korea. As shown in the graph, S&P 500 advanced 53.3% of the days during the analysis period and fell during the remaining 46.7%. Similarly, KOSPI posted higher finishes 51.3% of the total days and lower closes on the remaining 48.7%.
Historical data shows that the probability of stock prices rising or falling was approximately even. This shows the limitations of market timing which predicts tomorrow’s market prices.
However, over longer investment horizon, the probability of losses decreases along with the volatility of stock prices.
| frequency | % |
|---|---|
| 1* -8% ~ -7.5% | -8.0% |
| 0 | -7.5% |
| 7 | -7.0% |
| 3 | -6.5% |
| 2 | -6.0% |
| 6 | -5.5% |
| 8 | -5.0% |
| 11 | -4.5% |
| 20 | -4.0% |
| 42 | -3.5% |
| 88 | -3.0% |
| 184 | -2.5% |
| 424 | -2.0% |
| 914 | -1.5% |
| 2091 | -1.0% |
| 4466 | -0.5% |
| 4973 | 0.0% |
| 2551 | 0.5% |
| 1024 | 1.0% |
| 421 | 1.5% |
| 184 | 2.0% |
| 81 | 2.5% |
| 35 | 3.0% |
| 27 | 3.5% |
| 17 | 4.0% |
| 10 | 4.5% |
| 8 | 5.0% |
| 1 | 5.5% |
| 3 | 6.0% |
| 1 | 6.5% |
| 1 | 7.0% |
| 0 | 7.5% |
| 0 | 8.0% |
Rise: 53.0% | Fail: 46.3% | Average return: 0.03%
Source : Samsung Asset Management, Bloomberg, S&P500 (Jan 1, 1950 ~ Dec 31, 2017), 16,999 days. The S&P500 comprised90 stocks between 1926 and 1957.
| frequency | % |
|---|---|
| 1* -8% ~ -7.5% | -8.00% |
| 7 | -7.50% |
| 7 | -7.00% |
| 6 | -6.50% |
| 15 | -6.00% |
| 13 | -5.50% |
| 19 | -5.00% |
| 46 | -4.50% |
| 65 | -4.00% |
| 89 | -3.50% |
| 128 | -3.00% |
| 215 | -2.50% |
| 433 | -2.00% |
| 695 | -1.50% |
| 1288 | -1.00% |
| 2215 | -0.50% |
| 2160 | 0.00% |
| 1409 | 0.50% |
| 810 | 1.00% |
| 447 | 1.50% |
| 237 | 2.00% |
| 151 | 2.50% |
| 89 | 3.00% |
| 57 | 3.50% |
| 48 | 4.00% |
| 32 | 4.50% |
| 13 | 5.00% |
| 16 | 5.50% |
| 11 | 6.00% |
| 8 | 6.50% |
| 5 | 7.00% |
| 4 | 7.50% |
| 1 | 8.00% |
Rise: 51.2% | Fail: 48.5% | Average return: 0.04%
Source : Samsung Asset Management, Bloomberg, KOSPI (Jan 1, 1980 ~ Dec 31, 2017), 10,222 days.
Investing in S&P 500 over an investment horizon of 15 years or more minimizes the probability of recording a loss to zero regardless of when the initial investment was undertaken. This is applicable to the Korean market as well. Longer investment tenures lowers the volatility and the probability of recording a loss.
Dollar cost averaging is an investment method that entails continuous and consistent investments in the market over the long term. The bottom right graph shows the actual results of investing KRW 100,000 every month into KOSPI from 1980 to 2017. The cumulative principal amount is a mere KRW 45.6million; however, the NAV at maturity is KRW 350 million, equivalent to 7.8 times the principal.
The breadth and diversification of asset classes and regions beyond Korea reduce the unsystematic risk and volatility while generating stable rate of returns.
| BM | Weight | Return | Volatility | |
|---|---|---|---|---|
| Equity | Korea Equity | 50% | 4.8% | 9.9% |
| Bonds | Korea Bonds | 50% |
| BM | Weight | Return | Volatility | |
|---|---|---|---|---|
| Equity | Korea Equity | 25% | 4.3% | 7.7% |
| Global Equity | 25% | |||
| Bonds | Korea Bonds | 25% | ||
| Global Bonds | 25% |
| BM | Weight | Return | Volatility | |
|---|---|---|---|---|
| Equity | Korea Equity | 10% | 4.3% | 7.7% |
| Global Equity | 7.5% | |||
| US Equity | 15% | |||
| Europe Equity | 7.5% | |||
| Japan Equity | 6% | |||
| Emerging Market Equity |
4% | |||
| Bonds | Korea Bonds | 25% | ||
| Global Bonds | 25% |
| BM | Weight | Return | Volatility | |
|---|---|---|---|---|
| Equity | Korea Equity | 10% | 4.3% | 7.7% |
| Global Equity | 55% | |||
| US Equity | 15% | |||
| Europe Equity | 5% | |||
| Japan Equity | 5% | |||
| Emerging Market Equity |
3% | |||
| AI | Commodities | 5% | ||
| Bonds | Korea Bonds | 25% | ||
| Global Bonds | 25% |
It is essential for asset managers to incorporate individual’s lifecycle and longevity along with multi-asset classes into the investment strategies.
We leverage our investment capabilities to adjust asset allocations to lower risks investments as retirement nears in order for individuals to achieve the desired standard of living.
It is important for investors to take into account the various fees and costs when investing into funds.
The chart below shows a difference of 12% in returns between low-cost and high-cost product over a 10-year time frame, which grows to 31% when the investment period extends to 30 years.