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Why is long-term investing so easy, yet so difficult?

08 October 2020

4 minute read

Whether you are currently invested or not we often ask ourselves should I be invested now – is it the right time? On the evidence the answer should surely be yes and yes, but our infatuation with trying to time entry and exit from the market often leaves us not invested.

Who's it for? All investors

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.

What you’ll learn:

  • Why time in the market is better than timing the market.
  • Why recent information feels much more relevant.
  • Why sensible investing is actually quite boring.

As a long-term investor since 1970 and with a time horizon of ten years, if you had invested sensibly – by spreading your money across many individual investments around the world – then it is difficult not to have been successful, or at least very difficult not to have made a profit.

This might seem like a bold statement, and many investors may disagree but history shows this to have been true. If we look at the returns of global stocks and shares1 and all the possible ten-year periods since, we see that an overwhelming 97 out of 100 ended in a gain. At the end of this article, you can see individual performances for each of the last five years. This illustrates that, along the way, the returns can be quite volatile. The average total return over the period, as measured by the MSCI World Index is 126% equal to an annual return of 8.5%. That is a significant return for sitting on your hands for 10 years. The future, especially that of the markets, is unpredictable with any level of accuracy, and so the past performance of investing by no means guarantees future performance. Nevertheless, we can still learn some important lessons to take forward.

Time in the market, not timing the market

Whether you are currently invested or not we often ask ourselves should I be invested now? Is it the right time? On this evidence the answer should surely be yes to both (as long as you have the emotional and financial ability to take some risk), but our infatuation with trying to buy and sell investments at the ‘right’ time often leaves us missing out.

So why isn’t everyone with money for the long term invested like this (and we aren’t)? Only investing in shares may not be appropriate for all investors, but if you introduced bonds – a generally safer type of investment although not without their own risks (learn more about investment bonds) – into the mix then the chance of making a loss would likely decrease, but so too would the average return. This surely increases the attractiveness of a diversified buy and hold strategy. So, why are we far too often reluctant to get invested then?

Today’s news is tomorrow’s fish and chips paper

One reason maybe that it is very boring, not the ‘Wolf of Wall Street’ stuff investment movies are made about. Perhaps this is why we see many investors speculating on individual shares but also leaving much of their money in savings accounts accruing next to no interest. Much of the answer, however, lies in our psychology and the way our brain puts weight on information that feels like it is more relevant.

It is very easy to downplay the importance of long-term trends, such as the likelihood we will profit from long-term investment, but instead pay much more attention to more current information, such as recent share market movements or current political events. This is because the recent information feels much more relevant. Even when markets are rising there are often fears of a significant fall on the horizon. You don’t have to look very far to find someone opining that a downturn is likely.

What does all this mean for investors?

For long-term investors the truth is that you have to be very confident that a significant change will occur in order to bet against the long-term odds. The 3 (out of 100) 10-year periods where investors would have made a loss all came as a result of the financial crisis.

Of course these numbers are based on past performance, which is not a reliable indicator of future performance. The present is always subtly different from the past, but is it enough to discard investing altogether? At Barclays we still believe that, over the long-term, a well-diversified portfolio is your best protection against the unknowns of what lies ahead in the markets. It is not a ‘sure bet’ but it can help you ride out the inevitable short-term bumps and take advantage of odds stacked in your favour.

The Barclays Ready-made Investments are just one example of a range of diversified funds which allow you to select the level of risk you are most comfortable with. These multi-asset funds invest across a range of asset classes and regions, offering a globally diversified one-stop solution for investors. Ready-made Investments are not the only funds that we offer and they won’t be appropriate for everyone. 

We believe that the best way to achieve your long-term investment goals is to have a diversified portfolio. To help you we’ve created our Funds List – it’s made up of funds we like from the sectors we believe are key to building a diversified portfolio. Within each sector there’s a selection of the funds we believe will meet their investment objectives – there’s a mix of investment focus and investment approaches to choose from. So why not take a look at our selection? 

We don’t offer personal investment advice so if you’re unsure you should seek that independently.

Funds are designed for the long term so you should only consider them if you can stay invested for at least five years.

All of these investments can fall in value as well rise; you may get back less than you invest.

These are our current opinions but the future, as ever, is uncertain and outcomes may differ.

Find out more about our Ready-made Investments.

Appendix: MSCI World Index annual returns (%)

August 2015 to August 2016

August 2016 to August 2017

August 2017 to August 2018

August 2018 to August 2019

August 2019 to August 2020

MSCI World GBP

25.3

18.1

12.1

7.0

6.2

Source: Factset, Barclays

Past performance is not a reliable guide to future performance.

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