It can be reassuring to take a long-term perspective


When stock markets are going through one of their inevitable periods of turmoil, it can be reassuring to take a long-term perspective and remember that you are investing for years, rather than days or months. This may remind you that there is plenty of time for the markets to recover from any temporary setbacks.

Another benefit of taking a long-term perspective is the way it helps us see that the general trend in stock markets has been positive, even though there have been many times when share prices have fallen sharply. When you are devising a long-term strategy for your investments, it is important to tailor it to your specific needs. The most important aspect of the decision is likely to be the length of time you are investing for.

A highly successful investor
Warren Buffett is one of the world’s richest people and is a highly successful investor. He’s achieved this partly by identifying companies that he believed were worth more than their market value, investing in them and, crucially, holding that investment for the long term. It sounds remarkably simple, but given the ups and downs of the global markets, it takes a high level of discipline, nerve and conviction in your decisions.

Keep focused on your end goals
It’s important to have in place a sound investment strategy to keep you focused on your end goals and not to let market noise sway you. If appropriate, consider investing at regular intervals over the long term. Keep on investing through market lows when share prices are undervalued, so that you gain more wealth when markets rise again. This can help smooth some of the stock market ups and downs, and you avoid investing all of your money when the market is at a peak.

Your attitude towards investment risk
Understand your time horizon and your attitude towards risk. They affect how you invest. We’re all different, and our personal risk attitude can change with our circumstances and age. The nearer you approach retirement, the more cautious you’re likely to become and the keener you’re likely to be to protect the fund you have already built. Note that the value of your fund may fluctuate and you may not get back your original investment.

Spread risk through diversification
Diversify your portfolio so that when one part of the market does not perform it is balanced out by another part of the market that does. View your investment portfolio as a whole. Asset allocation is the process of dividing your investment among different assets, such as cash, bonds, equities (shares in companies) and property. The idea behind allocating your money among different assets is to spread risk through diversification – the concept of not putting all your eggs in one basket.

Assets that behave differently
Balance your portfolio and maintain a sensible balance between different types of investments. To benefit from diversification, you need to invest in assets that behave differently from each other. Each asset type has a relationship with others – some have very little or no relation to each other (known as a ‘low correlation’), whereas others are inversely connected, meaning that they move in opposite ways to each other (called a ‘negative correlation’).

Mirroring the performance of a particular share index
There will always be times when one asset class outperforms another. Generally, cash and bonds provide stability while shares and property provide growth. Funds are either actively managed, where managers make decisions about the investments, or passively managed (typically called a ‘tracker’), where the fund is set up to mirror the performance of a particular share index rather than beat it.

Benefit from compound growth
Think long term. It is time in the market that counts – not timing the market. The longer you are invested in the market, the greater the likelihood of making up for any losses. What’s more, the sooner you start investing, the more you will benefit from compound growth.

Investing as tax-efficiently as possible
Different investments have different tax treatments. Tax is consequential to many wealth management decisions. Our understanding and experience can help you manage and protect your wealth, whatever form it takes. We can advise you about the tax treatment of your current investments, and of any investments you are considering, to ensure that you are investing tax-efficiently. It’s important to remember that your requirements are unique to you. What’s a good investment for one individual is not automatically a good investment choice for you, so don’t follow the latest investment trends unless they fit with your plan.

Review your portfolio
As the years go by, it is important to review your portfolio regularly to make sure that it still suits your long-term strategy. If an investment has done particularly well, you may find that it now accounts for a disproportionate share of your overall portfolio and you need to do some rebalancing.

In addition, you will probably need to adjust the weightings of your investments from time to time – for example, to reduce the amount of risk you are exposed to as you get nearer to retirement.