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Four investing lessons from 2019

21 November 2019

4 minute read

This year has been an eventful one for investors with ongoing Brexit uncertainty and global tensions between the US and China. We look as some of the investing lessons we can take away from 2019.

Who's it 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.

What you’ll learn:

  • Why it’s important not to follow the herd
  • Why investors shouldn’t try to time the market
  • How pooled investments can help you build a diversified portfolio.

Brexit and tensions between the US and China have been the two dominant themes for global markets this year, but despite ongoing political and economic uncertainty markets have proved resilient.

There have been plenty of shocks along the way, however, which have tested investors’ nerves. Here, we look at four lessons for investors from events in 2019.

1. Don’t follow the herd

It can be tempting to pile into investments that are looked after by a ‘star’ manager, or which are supposed to the next big thing, but with any investment it’s important to remember there are never any guarantees of positive returns.

The term ‘star’ fund manager describes those managers who on the basis of strong track records, giant funds and plenty of media attention, have proven highly popular with investors. Often being invested in these funds can reap high rewards, but like all investments, money can be lost as well.

The downfall of Woodford Investment Management in 2019 is a case in point. Based on his previous strong reputation managing UK equity income funds at Invesco Perpetual, many investors were hoping for repeated success when Neil Woodford created his self-named firm back in 2014. A manager well-known for following a ‘contrarian’ approach to investing, Woodford’s tactic of picking unloved cheap shares in the belief these investments would deliver positive returns when they came back into favour, initially proved positive for holders of his Woodford Equity Income fund.

However, by the end of 2016 the fund started to underperform and in the three years since it has lost investors money. Woodford is not the only UK fund manager to have lost money over this time period, but the lesson provides an important reminder that investors shouldn’t invest in what’s popular at the time without doing plenty of research so they are fully aware of the risks involved.

Even if a manager has previously provided impressive returns, past performance can never be relied on as a guide to future performance. Always make sure you fully understand any investment you’re considering putting your money into and never invest in something just because it’s the current flavour of the month. If you’re unsure where to invest, seek professional financial advice.

2. Market timing rarely works

Markets in 2019 have been anything but predictable.

Despite political changes, including a new Prime Minister in the UK and a looming election in December, and a China-US trade war, markets have continued to rise steadily over the year, although with plenty of bumps along the way.

For investors, seemingly endless negative news can be deeply unsettling, and may make us want to sell our investments in anticipation of market falls. However, those who try to time markets risk missing out on long-term returns.

Whilst a market downturn is inevitable at some point, but there is no way of knowing when it will happen. The most sensible approach therefore, particularly during turbulent times, is to stay invested and focus on your long-term objectives rather than been distracted by short-term performance.

3. ‘Safe havens’ still carry risks

Many investors sought sanctuary in bonds in 2019. This has helped push up prices, providing existing investors with capital gains, but has seen yields – the interest paid to bond investors - fall to historically low levels, affecting those seeking income.

According to latest figures from the Investment Association, which is the trade body that represents investment managers, equity funds saw £1.7 billion of outflows in September, the fourth consecutive month of outflows. In contrast, investors ploughed £794m into bonds in September alone.1

Bonds, also referred to as fixed income investments or fixed interest securities, are fixed-term IOUs issued by companies or governments looking to raise money. Most bonds provide a regular, stable income from their interest payments (the yield). However, if the bond issuer can’t meet interest payments or repay the capital when it’s due, you could lose your whole investment.

Bonds issued by governments, known as gilts in the UK, are often considered among the safest investments because there is often a very low risk of a country defaulting on its financial obligations.

When bond prices rise, their yields fall and vice versa. Yields therefore fall when there is higher demand for bonds, as this demand pushes up their prices, resulting in capital gains for investors. In September, the yield on 10-year British gilts fell to a record low of 0.382% after the Prime Minister Boris Johnson said he would call an early election to end the Brexit stalemate.2 In other developed markets, a significant proportion of government bonds also have near negative or negative yields. This effectively means that some investors are having to pay to add bonds to their portfolio.

That said, gilts and bonds are still considered a way to add diversity in an investment portfolio, as their prices are affected by different market conditions than share prices. However, it’s important for investors to realise that like all investments, bonds are not risk-free.

4. Diversification matters

This year has seen the collapse of several big high street names, putting thousands of jobs at risk and resulting in losses for shareholders.

Investors often start out on their investment journey by buying shares in the household names they trust. However, investing in individual shares is usually only appropriate for experienced investors with the knowledge and skill to select those that will hopefully avoid financial difficulties.

Making sure your investment portfolio is properly diversified across a wide range of asset types and sectors can help minimise the impact of any stock market shocks, as if one investment then performs badly, hopefully some of the others might make up for any losses.

One of the easiest ways to build a diversified portfolio is by investing in funds such as unit trusts, open-ended investment companies (OEICs), investment trusts and Exchange-Traded Funds, as your money goes into a wide range of shares, bonds and other assets selected by fund managers. You can further diversify by choosing funds which invest across different sectors and geographical areas.

Our Barclays Funds List can help you narrow down the wide range of funds available for you to invest in. Please remember though, we’re not recommending any of these funds as being appropriate for you in your personal circumstances, so it’s up to you decide which, if any, are right for you. If you’re unsure where to invest, you should seek professional advice.

Or, if you don’t fancy choosing a range of funds yourself, you could invest in one of our Ready-made Investments. These offer immediate diversification because each RMI fund invests in other funds which hold different types of assets such as cash, bonds and shares.

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The value of investments can fall as well as rise. You may not get back what you invest. We don’t offer personal financial advice so if you’re not sure about investing, seek independent advice. Tax rules can change and their effects vary depending on your individual circumstances.

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