The significance of spending time in the market

If you want to give your investments the best chance of earning a return then it’s a good idea to cultivate the art of patience. The best returns tend to come from sticking with a long-term commitment to your investments.

The value of investments can fall as well as rise and you could get back less than you invest. If you're not sure about investing, seek independent advice.

Listen to our podcast below on what is often the most difficult part of investing: sticking with your investment plan and established financial goals, especially during periods of uncertainty.

What you’ll learn:

  • Why staying invested gives you the best chance of earning a return
  • How to avoid getting distracted by your portfolio's short-term performance
  • How to manage your portfolio over the long-term.

What you’ll learn:

  • Why inflation matters for savers and investors
  • Why deflation is bad for stocks
  • Which investments suffer the most from bouts of deflation and inflation.

The longer you’re prepared to stay invested, the greater the chance your investments will yield positive returns. That means holding your investments for no less than five years, but preferably much longer. During any long-term investment period, it is vital not to be distracted by the daily performance of individual investments. Instead stay focused on the bigger picture.

In it for the long-term

Success in the stock market is all about time and patience – it’s previously been noted that it should be more like watching paint dry.

But it’s understandable that when you put your money into the market, you will be tempted to check up on how your investments are performing on a regular basis and in our technology-driven age, you can monitor them 24/7.

Seeing investment prices fall, sometimes with alarming speed, can be enough to spook even the most experienced of investors. But remember that the reasons why you identified a particular fund or share as a sound investment in the first place should hopefully not have changed. The fall could just be down to market conditions as much as anything the individual company or fund manager has done, and in many cases, given enough time, investments should hopefully recover their value.

However, at the same time, it is essential to leave your emotions to one side because on occasion, there could be a good reason to sell. For example, a fund manager you were backing is no longer in the driving seat, or the fundamentals of a company you had bought stock in have fundamentally changed for the worse.

Remember, just because something appeared to be a good investment a year ago, it does not mean it will be going forward. If you are unsure how to interpret falling share values, talk the situation over with a financial adviser.

Developing a buy-and-hold strategy for the long-term

Developing the art of patience will help keep you focused on your goals. Whatever happens in the markets, in all probability your reasons for investing won't have changed. For example, your aim may still be to cover education costs for your children, or save for retirement. A buy-and-hold investment strategy is likely to serve you best for these long-term goals.

If it was possible to know in advance when a market will lift from the bottom, or fall from the top, we'd be very rich. Some investors develop their own exit strategy knowing in advance how far an investment's value must fall or rise before they will consider selling. Such a plan can enable investors to ride out short-term market corrections and movements.

Bear in mind too the benefits of so-called ‘pound-cost averaging' during periods of market volatility. Essentially, if you are investing on a regular basis, your contributions will buy more shares when prices are low and less when they are expensive. Over the long run this should help smooth out your returns, though there is no guarantee of this.

Changing your portfolio will cost you money

Too much tinkering not only undermines your investment aims but will also ratchet up the costs. Every time you buy or sell an investment there's a charge – sometimes several will be incurred. Investors can easily overlook the reality that by making even small adjustments, the charges can start eroding any profits earned.

As a result, it’s best not to develop a regular buy-and-sell habit. And remember, no one knows which days will turn out to be the best trading ones, and by being out of the market, you could miss them.

When the time is right, rebalance for stronger diversification

For all investors, there will come a time when their portfolio needs to be rebalanced.

A major reason for a realignment is when the actual allocation of your assets – be that shares, government bonds, corporate bonds or cash – no longer matches your risk profile. Alternatively, it may be because your investment horizons have shortened. Perhaps, for example, your retirement date is getting closer. These are solid reasons for selling some assets and buying new ones to keep your investments appropriately diversified.

For example, an investor aged 30 with a strong risk appetite and who is investing over a very long-term period might have 70% of their portfolio invested in shares and the remaining 30% in bonds. Twenty years on, as they approach the time they may need the funds from their investments, they might decide to move a larger proportion of their portfolio into lower-risk assets, such as bonds and cash.

Any period of active portfolio management shouldn't be triggered by a knee-jerk response to the market. It should be a process of change, which is both well-planned, and well-executed. If you are unsure about how best to rebalance your portfolio, it might be worth talking to an independent financial adviser.

Reinvesting income and dividends for greater growth

It may be tempting to spend any income generated by your investments, but if you don't need it in the short term, why not plough it back into your portfolio? This will increase the number of shares you own. And, of course, a bigger shareholding means more dividend payments next time around.

Thanks to dividend reinvestment plans (called drips) set up by many of the large listed companies, it's never been easier for shareholders to buy new shares automatically with their dividends. The Barclays Smart Investor service can set up a reinvestment arrangement for you so your income and dividends are automatically reinvested.

It's important to remember that investing isn't necessarily right for everyone. The risk that you could lose some or all of your money is too much for some people to stomach. If you are unsure, it may be a good idea to talk over your suitability and approach to risk with a professional financial adviser.

You may also be interested in

The value of investments can fall as well as rise. You may get back less than you invest.

Staying invested

You must learn the art of patience if you want to give your investments the best chance of earning a return. By committing to long-term investments, you give your money the greatest chance to grow. In this section, we take a look at some slightly more advanced strategies to help you stay invested and manage your portfolio's performance.

Principles of investing

If you’re new to investing, knowing where to start can be a daunting task. Here, we guide you through your investment journey, from what to consider before you start, the different types of investment account, which might suit you, and the various asset classes. You’ll also learn why it’s important to focus on the long-term as an investor, and create a diversified portfolio which includes a range of different investments.