Investments Time and patience have long-term benefits

This post is over a year old. There may now be updates to the facts stated and the views of the author. Please read with this in mind or check for more recent articles in Savings & Investments.

As you may be aware, stock markets around the world have been falling recently, mainly as a reaction to rising interest rates in the US and the current uncertainty over Brexit closer to home. Over recent days the Governor of the Bank of England has been warning of the potential car crash that Brexit will have for our wealth as a nation and these types of times always make us focus on the here and now.

At the same time (of course) we all have access to much more information than ever before. From news delivered by your mobile phone, to portfolio valuations available at the touch of a button, we are more connected to what is happening than at any time in the history of the stock market.

What this means is that we all have a temptation to check in on the value of our investments regularly. Volatility (being the way investments move up and down in value) is a natural consequence of investing money. By checking in on the value of our portfolios frequently we see the volatility of our investments much more than we ever did and consequently many people become anxious that volatility means they have “lost” money. Of course, you never actually lose (or make) any money until you eventually sell an investment, but it is certainly difficult to focus on that when all you see is your portfolio falling day by day.

US investor and author Rick Ferri recently posted this on Twitter:
 

Of course he is right, but that doesn’t make it any less tempting to check in on the value! Respected analyst Abraham Okusanya recently published some research about this very point – his entertaining summary is that if you check a “balanced” portfolio on a monthly basis, you are depressed and / or tempted to punch your financial adviser one-third of the time. But if you check it once a year, you will only see a negative return once every 6 years. 

What this says is that we should all keep our eyes on the goal; think about your investments in the context of your long-term goals and strategy and don’t be anxious about the journey you are on. 

Sometimes clients do expect that advisers or investment managers should be able to time investment markets (selling high and buying low!). Of course, that is impossible to do with any consistency and it is always time “in” the markets (rather than market timing) which pays dividends in the long-term. Indeed, the outcome if you miss just a few of the best days of a recovery in a market cycle can be devastating on your long-term returns:

Our advice is consequently always to stay fully invested through market cycles – be in for the long-term and make sure you time the sale of any investments in times of relative market strength.

Finally, to help put stockmarket volatility into context, the following chart shows how some of the major market cycles we have had in the past are now just small blips on the long-term journey:
 

Markets, generally, always recover from any major shocks that they have – even “Black Monday” is now nothing more than a blip on the chart – and this is another indicator that you should always be confident in the long-term plan you have built with your adviser. Hopefully these small snippets are useful for you, but if you do have any concerns please contact your usual adviser.

 

Past performance is not a guide to the future. Investments (and the income from them) can fall as well as rise.

Joel Adams – Latest Blog Posts

Cookies help us provide our services. By using this website, you accept our privacy policy  |  Accept cookies