Taking the long view on your investments

Investments

Due to the volatile markets in recent months. Private investors have become more nervous.

A recent survey by leading investment house Schroders revealed that almost three-quarters of UK investors said they were influenced by political developments and market movements, and check their investments at least monthly. Nearly one in five investors said that they were waiting for the dust to settle before making investment decisions.

So is it the wisest choice to allow political uncertainties and market swings to colour your investment judgements?

Five-year plans

Most investment experts agree that an investor should expect to hold share or bond-based funds for a minimum of five years. The longer the holding period, the more likely it is that funds invested in shares will outperform cash deposits or bonds – although there is no certainty that this will happen. Over five years or more, most of the headline-grabbing news normally fades away or is overtaken. The value of taking a longer-term approach is well illustrated in a table from the latest Barclays Equity Gilt Study.

  2 3 4 5 10

UK shares outperform £ cash

69% 71% 73% 76% 91%

UK shares outperform £ bonds

68% 74% 75% 72% 77%

For example, UK shares outperformed cash deposits in nearly three-quarters (73%) of four-year periods over the 118 years from 1900 to the end of 2018. Shares outperformed cash in over nine out of ten periods of ten years.

Look back at the past five years from the start of 2014 to the end of 2018. The UK experienced two general elections, two referendums, the resignation of a prime minister and the election of Donald Trump in the US. Despite all these upheavals, investors in UK shares who stayed the course received an overall return of 22.2% against just 1.8% from cash.

Of course, stock markets can fall and sometimes they can drop very quickly. But the rebounds from falls can also happen quickly and are likewise hard to predict. A very small number of days have historically generated a surprisingly large proportion of total long-term returns. Over the last 30 years to 2018, about 0.2% of days generate roughly half of total performance.

So if you come out of the market, you could be missing out on key growth moments. Ignoring the short-term noise in favour of paying attention to longer-term developments has two other benefits: your investment turnover will be lower, reducing overall costs, and you can stop worrying unnecessarily about the daily changes in investment values.

 

The value of your investments, and the income from them, can go down as well as up and you may not get back the full amount you invested.

Past performance is not a reliable indicator of future performance.

Investing in shares should be regarded as a long-term investment and should fi t in with your overall attitude to risk and financial circumstances

 

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The information in this article does not constitute advice and should be used for informational purposes only. This content has been provided to Helm Godfrey by Taxbriefs.