A fully flexible way to invest
2 minute read
Investing over the long-term may increase your prospects for returns. Here, we explore why this strategy might work.
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 professional independent advice.
Conventional investment wisdom suggests that investing for the long term gives your money the greatest chance of growing in value.
Here, we look at four reasons why investing for at least five years, but ideally longer, is thought to be a generally sensible strategy.
Long-term investing can help you avoid selling out of the market during periods of economic uncertainty, and crystallising losses. Many investors will have been tempted to run for the hills during turbulent times, but staying invested means you’ll be able to benefit from any potential recovery.
Dr Peter Brooks, Head of Behavioural Finance at Barclays, said: “What you read in a newspaper may not be representative of your investments, anyway – remember that you are more likely to read negative news than good news.
“Also, you aren’t likely to be reading about all the investments you hold. If you have a spread of investments, you won’t be holding only the best performing ones – or only the worst. This can make even the tough years more bearable.”
Another advantage of adopting a buy-and-hold strategy is that it’ll mean you’ll be less inclined to keep checking up on how your investments are performing, although it’s still important to review your investments about every six months.
However, once you’ve put time into choosing your investments, you shouldn’t need to make regular changes. You can instead focus on staying the course in the hope of long-term returns. Bear in mind that it’s important to ensure your money is invested in a wide range assets and sectors, so that if one investment performs badly, hopefully stronger returning investments will make up for it. Funds can provide a simple way to do this, as your money is pooled together with that of other investors and spread across a wide range of investments, helping you spread your overall risk.
Dr Peter Brooks said: “The more often you look at your investments, the more ups and downs you are likely to see. This gives you a greater sense of the risk of your investments, but very little sense of the returns.
“If you can look less often, you are more likely to see a gain on your portfolio, and this boosts your comfort with staying invested.”
Hanging on to your investments over many years means that, as you’ll be making fewer changes to your investment portfolio, you are likely to pay less in commission and fees. This can make a big difference to your long-term returns over the years. Charges can significantly eat into returns if you’re regularly often chopping and changing your investments.
Trying to “buy low, sell high” is tricky, as no-one knows for certain which way the market will move next.
Dr Peter Brooks said: “You might have a sense of impending doom and be tempted to sell with the intention to buy back after any market falls. Picking market peaks and troughs is really difficult. Get it wrong and you could miss out on sizable returns.
“Ask yourself, what would you do with the money when it is not invested? If you don’t intend to spend it, then riding out any markets would limit your potential for mis-timed decisions. It is not easy but it comes back to the best portfolio for you is one you can hold in all market conditions. You only get something like the long term expected returns from investing by investing for the long term.”
Remember that no matter how long you invest, there are no guarantees that you’ll make gains, and you could still lose money. Tax rules can change in future and their effects on you will depend on your individual circumstances.
Seek independent advice if you’re unsure where to invest.
The value of investments can fall as well as rise. You may get back less than you invest. Tax rules can change and their effects on you will depend on your individual circumstances.
A fully flexible way to invest
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