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Five timeless investing principles

10 September 2019

4 minute read

Designers showcase new collections at London Fashion Week, but when it comes to investing there are some principles which never go out of style.

Who's this for? All investors

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.

What you’ll learn:

  • Why it’s human nature to follow the herd.
  • Why focusing on timeless investment principles may be a better approach.
  • How Barclays Funds List can help you narrow down your investment choices.

Remember puffball skirts, scrunchies, mullet haircuts and harem pants?

Most of us are happy to consign these fashion horrors to history, but at the time you might desperately have wanted to appear on trend – even if this meant looking like a giant mushroom, or sporting a “business at the front, party at the back” hairstyle.

It can be a similar story with investing. If everyone’s talking about a new investment or fund as though it’s the best and most exciting place to put your money, it’s human nature to want to join the club.

Why do we follow trends?

We spoke to Dr Peter Brooks, Head of Behavioural Finance at Barclays, about three reasons we tend to follow investment trends, and why a timeless approach never goes out of fashion.

1. Fear of missing out (FOMO)

No-one likes to feel like they’re the odd one out, which is why, both with fashion and investing, we often tend to follow the herd.

FOMO often causes investors to make bad decisions, such as putting their money into something they don’t totally understand, just because that’s what everyone else is doing.

Dr Peter Brooks said: “Seeing others making investment gains can sometimes be enough to make you feel like the uncomfortable outsider to something you want to be part of. For many people this can be enough to make them get involved – even if they haven’t fully got to grips with exactly what this entails, or the risks involved.”.

2. To impress others

Wearing the latest fashions shows others that you’re up to speed with what’s “in” this season.

Similarly, it can feel good to demonstrate you’re keeping on top of all the latest investment trends by investing in whatever’s popular at the time.

“It is impossible for us all to be trendsetters, so people often simply assume what other people are doing is right and buy those funds which appear fashionable to others,” said Dr Peter Brooks. “Sometimes this is also plugging a gap in an investor’s knowledge – a type of crowdsourcing investment ideas.”

“While it is not necessarily a bad thing to invest in something that’s popular, it’s essential that investors do plenty of their own research first, so that they can be certain that the investment they’re buying into is right for them. That means looking at things such as charges, the fund manager’s track record, and the sorts of risks that might be involved. If after that you’re still not sure whether a particular fund or investment is the right choice for you, it’s important to seek professional financial advice before taking the plunge.”

3. Sticking with what we’ve already got feels boring

Imagine you had to wear the same clothes every day – it’d get pretty dull after a while. This is why we’re often tempted to buy something new, even though what we’ve already got is perfectly fine.

The same is true of investments. We often get the urge to tinker with our portfolio and add something new for no good reason other than we’ve owned the same stuff for a while.

Dr Peter Brooks said: “Keeping a portfolio aligned to your goals doesn’t normally require constantly looking for fresh ideas. Good investing is often boring as you need to take a disciplined approach to rebalancing your holdings from time to time. Rebalancing is when you need to make adjustments to your portfolio to make sure you’re still on course to meet your financial objectives, as the performance of your investments will vary over time.”

Five investing principles that will never go out of fashion

A bit like the little black dress, there are some timeless investing principles which will never go out of style.

  1. Risk matters. Think carefully about whether you’re comfortable accepting the fact that you could lose money when you invest. Understanding your approach to risk can help you to determine whether to invest and if you do how you split your money between different investment types such as shares, bonds and cash, or funds that invest in them.
  2. Diversification is vital. Investing in a diverse range of asset types can provide some protection if there’s a sudden drop in the value of a single investment, or a group of related investments, as hopefully stronger-returning investments will make up for it.
  3. Don’t be tempted by fads. Although investment fads might appear tempting, especially if they’ve previously offered impressive returns, remember that past performance should never be considered a guide to future performance. Treat anything you don’t fully understand with extreme caution and seek professional financial advice if you need help deciding whether a particular investment is appropriate for you.
  4. Take a long-term view. Committing to your investments for at least five years but preferably much longer, gives your money the greatest chance to grow.
  5. Try not to tinker with your investments too often. When stock markets are volatile you should focus on the reasons you chose your investments and whether or not those reasons still hold true. Dr Peter Brooks said; “Being too active when it comes to managing your portfolio could go against you, especially as each time you buy and sell investments you’ll incur trading costs which may end up eating into your long-term returns.”

Choosing where to invest

Just as finding the right clothes to suit you can be tricky, choosing which funds to invest in can be a challenge, especially with so many different options to pick from. That’s where Barclays can help.

“The best and most creative designers at London Fashion Week will fill the fashion pages and set the trends for the new season,” said Dr. Peter Brooks. “In investing it is also likely to be the best performing and most creative fund managers who become lauded in the media as they predict the “fashionable” investment styles and trends to make you money. Like the fashion designer, they are staking their reputations on getting it right ahead of time. A series of “misses” can kill a career.

“But how as an investor do you seek out the fund managers who act like the designers at the high street retailers who convert all the ideas of high fashion into affordable hits for the masses? One way that we offer is to look at the Barclays Fund List. Our experts scour the market for those fund managers with the potential to be winners in your portfolio, stripping out those edgy and niche styles which might be just a passing fad, and keeping the potential mainstays of a well-diversified portfolio.”

Bear in mind that no matter what approach you take to investment, you can still lose money; investments can fall in value as well as rise.

Please remember that Barclays Funds List isn’t an exhaustive list – there are plenty of other funds that may actually be more suitable for your portfolio. We’re not recommending any of these funds as being suitable for you based on your personal circumstances, so it’s up to you decide if any of them are right for you. If you’re not sure where to invest, you should seek professional financial advice.

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