When you read the news, it’s often filled with reasons not to invest. From the 2008 financial crisis to the UK leaving the EU, you may have approached investing with some trepidation. But choosing not to invest for these reasons alone means you’re likely to have missed out on long-term gains.
Research from Schroders shows there’s been a reason not to invest every single year over the last three decades. The coronavirus pandemic caused volatility and concerns in 2020, which may have put some investors off. The reasons highlighted in the research show just how many factors can have an impact on the markets, from war to banking crises. It’s not surprising that some would-be investors can get nervous after reading the news or seeing short-term volatility.
Investors benefit from 5.6% annual growth despite the dips
If you glance at the list of reasons not to invest, you may think investors have lost money. But despite the volatility they may have experienced, investors are likely to have benefited.
The research found that after adjusting for inflation, those invested in the FTSE All-Share index would have received average annual growth of 5.6% over 30 years. If you’d invested £1,000 in 1989, you’d now have £5,751. In contrast, those that put off investing and opted for a savings account are likely to have received an average growth rate of 1.9%. That would leave savers trailing behind investors with their initial deposit now being worth £1,818.
If you’re looking for the “perfect” time to invest to maximise your returns, you’re unlikely to find it. With so many different factors influencing global stock markets, there will always be a reason not to invest. Instead, the right time to invest is when it suits your situation and plans. Investing is a long-term decision and, as the figures demonstrate, when the peaks and troughs even out, they can deliver gains despite what you may read in the headlines.
Setting a long-term plan is crucial, but it can also be a challenge to stick to it, especially when you hear about trade wars, an economic crisis, or a market bubble.
5 tips for holding your nerve amid market volatility
1. Don’t check your investments every day
As tempting as it can be, avoid looking at your investments every day, or even every week. Your portfolio will experience up and downs that can seem dramatic when viewed as a single event. Instead, set out clear review dates when you’ll assess the performance of investments.
2. Focus on the bigger picture
Linking with the above point, rather than focusing on the day-to-day movements, look at the bigger picture. If you’re investing for a retirement that’s 20 years away, short-term volatility is likely to have little impact on your end goal. With a wider view, you’ll be able to see an overall trend.
3. Screen out some of the noise
It’s easier than ever to get information on what’s happening in the markets and what could have an impact. While useful, it can also make it tempting to diverge from your investment plan. It’s impossible to avoid all news in the modern world, but taking steps to screen out some of this can help reduce the risk of making decisions based on short-term volatility.
4. Avoid knee-jerk decisions
You can often make changes to your investments or withdraw your money with just a few clicks on your computer or phone. It’s convenient, but it also means you can make large decisions that could have a long-lasting impact without taking the time to fully think through your options. Before you make any changes to your portfolio, it is advisable you take a step back to assess the situation in the context of your goals.
5. Get in touch with us
Sometimes if you’re nervous about market movements, some reassurance can help put your mind at ease. As your financial planner, we work with you to create a risk-appropriate investment portfolio that’s aligned with your goals. During times of volatility or if you’re concerned, we’re on hand to help give you confidence and discuss if investment changes would make sense for you.
Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
Your capital is at risk. The value of your investment (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.