Financial markets have seen increased volatility since the outset of the Covid-19 pandemic, and with a continual flow of new information there is no clear indication as to whether markets are priced too high or too low.
With this in mind, we would like to share seven principles that we believe give a concise strategic framework for investing money in the current climate and beyond.
When markets are moving up, worries of investors tend to be low as they are comforted by the increase in value of their wealth. However, investor behaviour can change as markets fall. The primary offender in this regard is loss aversion which often leads to bad decision making. Taking, and continuing to take, financial advice will help you understand the current investment landscape and prevent decisions that could adversely affect your ability to build wealth over the longer term.
Make an investment plan and stick to it
Whether you are saving for retirement, funding your retirement via income withdrawals, saving for a special event, utilising various tax efficient investment vehicles, investing for income or growth, or investing in your capacity as a Trustee, Attorney or Deputy, never lose sight of why you have invested in the first place; to achieve long term returns in excess of cash plus inflation.
Invest as soon as possible
Timing the market is a notoriously difficult skill to master and one that is fraught with risk. By investing at the earliest possible opportunity, you will allow your investment sufficient time to ride out the peaks and troughs of the market.
Don’t just invest in cash
With interest rates currently at all-time lows and the consensus seeming to provide little prospect for increases over the short term, cash is certainly not king. Therefore, it is imperative that investors look to use other asset classes that can provide the potential for greater long term gains and ultimately protect the value of their wealth after inflation.
Diversify your investments
Or quite simply, do not have all your eggs in one basket. Diversifying across different asset classes and geographic regions will not only help to mitigate risk but will assist in generating positive, long term returns.
Invest for the long term
This, we believe, is the key to successful investing. Not only does it give you time to ride out the peaks and troughs of market movements but it also gives you the opportunity to invest in assets that have the potential for significant long term growth. Short term investing is more akin to speculation, leaving a greater exposure to the vagaries of the market.
History has shown that markets go up and down, and when they fall, they recover. Staying invested will ensure you capture the long term upside of stock markets.
To highlight this, Schroders looked at the performance of the FTSE 250 Index over the last 30 years. It confirmed that remaining in the market rather than trying to time the market produced the best results.
|Period invested||Annualised Return|
|Whole 30 years||11.60%|
|Best 10 days missed||9.60%|
|Best 20 days missed||8.20%|
|Best 30 days missed||7.00%|
When investing, it is imperative that these principles are upheld at all times. We ensure that the financial position of all our clients is sufficiently strong to withstand periods of market stress. Ultimately, the best strategy is to invest as soon as possible, and stay invested for the longest possible period of time; and these are our overarching principles when it comes to managing the investment of your money.
NB. The value of investments can fall as well as rise. You might not get back what you invest.