Why a hands-off approach could make sense when you invest
Posted onWhile it can be tempting to actively monitor and manage your investments, taking a back seat could lead to better outcomes.
There’s a saying that “the best investors are dead” because they’re not tempted to try and time the market. Daily movements mean it’s tempting to try and guess when the market is at a high to sell, and when to buy at a low. However, it’s impossible to predict market movements consistently, and even missing out on a handful of the best performing days could cost you.
Previous research from Schroders found that if you had invested £1,000 in 1986 in the FTSE 250 and left that investment alone, you could have £43,595 by 2021. On average, the annual return would be 11.4%.
However, if you had been tempted to make changes to your portfolio and ended up missing just the 30 best performing days of the 35 years, the average annual return falls to 7%.
Periods of volatility are part of investing
Investment volatility can make it tempting to regularly buy and sell. However, it’s part of investing and learning to ride out the peaks and troughs could make you a better investor.
When you start investing, doing your research is important. If you understand which investments are right for you and your goals, you can create a portfolio that has a long-term view. You should then have faith in the portfolio you’ve created so you can take a hands-off approach, even during times of uncertainty.
Working with a financial planner can give you the confidence you need to get through the ups and downs of investing.
While markets have historically delivered returns over the long term, you should remember returns cannot be guaranteed. You should understand if investing is right for you and what is an appropriate level of risk. Please contact us if you have any questions.
5 practical investment tips for holding your nerve during market volatility
1. Try not to review your portfolio too frequently
While checking your investment performance can be addictive, especially during periods of volatility, it can make it far more tempting to try and time the market. Having access to the information with just a few taps on your phone means it’s easier than ever to get caught in a cycle of checking your portfolio’s performance every day or week.
So, while it might seem strange not to check the performance regularly, it could help you stick to your long-term plan.
2. Tune out the noise from the media
The media is often filled with sensational headlines about share prices plunging overnight or soaring on the back of other news. It can make it seem like you should be doing something to get the most out of your investments.
Remember, market movements are a normal part of investing, and the headlines often report the extremes. As a result, the movement in your portfolio may not be the same as the media reports. Try to ignore the noise and focus on the steps you’re taking to reach your long-term goals.
3. Take your time when making investment decisions
There are times when it’s appropriate to make changes to your investment portfolio. However, these should carefully consider and reflect your wider financial circumstances and goals. While it may seem like you must act fast when investing, take your time. Giving yourself time to look through your options could mean you make better choices.
4. Look at the investment performance over a long time frame
When you see your investment portfolio’s value has fallen when compared to your last review, it can be frustrating. Yet, over your full investment time frame, you will likely have benefited.
Look at how much your portfolio has grown since you first started investing to get the full picture. Looking at long-term trends can put short-term market movements into perspective and ease concerns you may have.
5. Remember, losses are only realised when you sell
It can be disheartening when the value of your investments falls. However, remember, they are only paper losses unless you sell the assets. Historically, markets have recovered even after periods of downturn.
Do you want help building an appropriate investment portfolio?
Understanding which investments make sense for your goals and when you should make changes can be difficult. Working with a financial planner can help you create a portfolio you have confidence in, so you feel comfortable taking a hands-off approach. Please contact us to talk about your investments.
Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
The value of your investment 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.
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