The common perception of a successful investor is of a savvy, clued-up speculator, glued to a grid of blinking screens, pulse tracing the spikes in volatile markets. Not for the faint-hearted, nor indeed the well-rounded.
But just as learner drivers needn’t worry about the extremes of Formula 1, the Wall St caricature has little to do with investing for the long term.
In fact, by following a few simple rules, you can increase your chances of a happy experience.
Even professional stock-pickers find it hard to identify tomorrow’s top performers, with teams of analysts and streams of data at their disposal. Rather than risk it all on a few lucky dips, spread your hard-won assets across industries and regions. This won’t guarantee a profit, of course, but will at least ensure you won’t easily lose everything on one bad bet.
The rise of the low-cost Exchange Traded Fund (ETF) has made buying a diversified portfolio as effortless as purchasing a single stock, so it’s never been more convenient to avoid the pitfalls of concentration. These days they come in a range of flavours, such as sustainable (often abbreviated to ‘ESG’ – Environmental, Social and Governance – or ‘SRI’ – Socially Responsible Investing) or income-focused.
However, there could well be a role for funds with a more discerning manager in your investment portfolios. Some markets are more efficient than others, and opportunities may lie in less-researched frontiers for a local expert to exploit.
The trouble is that choosing your funds can seem as hard as picking individual stocks; at least companies (mostly) don’t have opaque names or come with a forest of documents. Past performance can’t be relied upon, nor can you reasonably be expected to conduct your own thorough due diligence process.
Neither is it easy to devise the big-picture portfolio foundation into which these funds will fit: your asset allocation. How much in UK shares? How much in the US, Asia, Europe and beyond? How much in bonds, or other types of investment?
Again, the good news is that you don’t have to spend time on these questions if you don’t want to. You can pick from funds that have survived a performance filter and ongoing on-site visits, and made it into our dedicated specialists’ good books. Or you can take advantage of our all-in-one funds that cover a broad range of asset types: pruned and rebalanced on your behalf, at whatever level of risk you choose.
Of course, should you require it, you can always seek independent advice and/or personal portfolio management from an expert.
It can be difficult to take the plunge. Whilst the case for long-term investment is compelling, and the future (probably) no less unknowable tomorrow than it is today, you may well find yourself putting it off for another day.
But markets tend to go up, and then it feels even harder to invest: surely they’ll only come down again soon, and that’ll be the opportune moment? Or if they fall: how much further? It always seems safer just to wait and see.
A good way to overcome the cold comfort of cash is to drip-feed your investments in over time, effectively diversifying your start date. Statistically, this is likely to underperform investing all at once, but it’s certainly a gentler introduction as it takes away the worry of whether or not you’re investing at the right time, and much better than staying perennially perched on the sidelines. Consider setting up an automated regular investment, so you don’t have to agonise again and again.
Don’t look back
An infamous study by Fidelity, fund management company, found that their best performing investors were those who had forgotten that their accounts existed. The study was infamous partly because it suggested that the dead were outperforming the living, and partly because it later turned out that the study didn’t exist: it was a concoction of an over-eager financial media.
Yet the fact that the result was so widely believed speaks to an important truth: that often the best thing we can do to our investments is precisely nothing. It has been well documented that a ‘behaviour gap’ exists between individual investors and institutions: when it comes to our own money, we may not be able to resist unnecessary tinkering, and can succumb to the need for emotional relief when prices start to tumble, selling just before markets rebound.
The more frequently we check our portfolios, the more likely we are to feel that pain of paper loss, and in anxious haste make it indelible. Digital investment platforms make it easier than ever to compulsively check the day’s changes, but we might sleep better at night – and give our investments more of a chance to recover and grow – if we didn’t.
On the other hand, a periodic check-up can be healthy for a portfolio, especially if its original shape has been distorted by market movements. Managers come and go, and funds may outgrow their strategies, victims of their own success. A review or two a year should do.
Investing needn’t be a breathless rollercoaster of hot tips, frantic trades and micro-management. Jargon and complexity abound, but you can happily eschew it:
- Drip feed
- And don’t look back.
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.
Smart Investor offers a wide range of funds, and our Barclays Funds List may help you to narrow down the wide range available to invest in. These funds are selected by Barclays investment specialists and, based on our research, they’re the funds that we believe have the potential to generate consistent returns over the medium to long term.
These 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.