The Principles of Long-Term Investing

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The Principles of Long-Term Investing

Market volatility is now an ongoing feature of the day to day investment markets. It is something which presents itself on a daily basis and what has happened over the last 13 months can heighten feelings of concern in relation to investing your hard earned money.


I would just like to share with you some Principles of Long-Term Investing which I have created with the view to helping you stay the course and remain invested through the choppy waters.

So what has history taught us?

  • History has shown that the longer you keep your money invested, the greater the chances of a positive outcome. Staying fully invested through a market cycle has, in the past, ensured investors reap greater rewards over the long-term as rebounds after large losses are often significant.
  • Throughout your investment journey the markets will experience highs and lows in response to social, political and economic events. Timing the markets involves trying to anticipate when these highs and lows will occur, with investors hoping to buy when prices have reached the bottom and sell when they have peaked. As you know this is very hard to predict and getting it wrong means you could end up locking in losses and missing out on future gains.

 The following key principles of long term investment ensure our clients have better outcomes by:

  1. Staying Disciplined
  2. Understanding that Volatility is part of investing
  3. Keeping your money in cash in not the long-term answer
  4. Over the long-term, holding money in riskier assets is rewarded
  5. Diversifying

I often hear that clients are nervous committing funds to equity markets as they see and read they are at “all-time highs”. Markets need to reach new highs to progress and do so regularly, the question is are they overvalued and can they grow from these levels? 

 

Trying to time markets is difficult and typically costs clients over the long term as ultimately markets rise more than they fall.

The right thing to do is to stay invested

Over any 10-year period, the odds of ending with equity losses are 4%, and over the last decade missing just the best 10 days meant gaining 95% versus 190%. Bear Markets also tend to be shorter than Bull Markets. 

There could be further downsides, but these will pass

To summarise

Stay disciplined
Cash is not the long term answer
Don't try to time the market. Time in the market is what counts
Volatility is part of investing
Over the long term risk is rewarded
Diversify, Diversify, Diversify