Newsroom

Two runners

Endurance investing: it’s a marathon not a sprint

Colin Dyer photo

We’ve seen some significant market falls in recent weeks, which may have been unnerving for many investors. But at times like this it’s important to remain calm and remember that volatility is part and parcel of investing over the long term.

Just think of the tortoise and the hare – the moral of that story is that you can be more successful by being slow and steady than quick and careless. When it comes to investing, “slow and steady wins the race” is definitely the name of the game, because the longer you’re in it, the more likely you are to reap the rewards.

 

1985 to now

“Time in the market” is a favourite saying among finance professionals, and it’s easy to preach it when things are going wrong. But when you take a step back and look at market events in context, it’s clear to see why it’s consistently the advice that’s given:

FTSE 100 and world events

Source: Financial Express. FTSE® All-Share Index, total return with dividends reinvested, from 31 December 1985 to 31 December 2017. Figures don’t factor in any charges. Figures don’t factor in any charges. Past performance is not a reliable guide to future performance.

 

The chart above shows the major market events between 1985 and the end of 2017 (as far back as FTSE® All-Share Index data goes) and tracks the growth of a £10,000 investment over that time. A lot happened, and there were definitely bouts of panic, but if that £10,000 had remained invested for the whole period, the growth would have been remarkable – even taking charges into account, which the graph doesn’t.

But I think what’s really good about looking at 32 years of activity all at once is that it really brings things into perspective. 2016 was billed as a turbulent year for markets. But if you look at the impact of Brexit and the US election in relation to everything else that’s happened in recent history, it seems far less momentous than it would if we looked at the events in isolation.

Remember that the value of an investment can go down as well as up and could be worth less than was invested.

 

There will always be ups and downs

While it’s very difficult to time market falls exactly, in his Market Reviews, Andrew Milligan has been highlighting for some time now that a correction in equity markets wouldn’t come as a surprise.

As we move forwards in 2018, he also expects to see much greater day-to-day, week-to-week volatility in markets than we saw in 2017.

Encouragingly though, he believes there are few signs that a major sell-off is likely, particularly given the backdrop of solid expansion in company profits and the way the world economy is motoring ahead.

 

So what should you do?

Markets can be volatile, so instead of trying to predict the exact moment of the falls and rises, it’s better to focus on what you can control. Spreading your investments across different asset classes and regions can help you achieve the best possible returns for the amount of risk you’re comfortable taking. The main aim of this strategy is to reduce your risk of heavy losses in troubled times, without compromising too much on performance.

By limiting losses in the first place, it leaves you in a better position to make money when conditions improve again. If you invest £2,000 and lose 50%, you have £1,000 left, meaning you then need a 100% gain to get you back to where you started.

It’s also essential to make sure you’re set up in the right investments. Your financial planner will make sure you’re using the right strategy for your goals. Remember, investing for the long term doesn’t necessarily mean staying in exactly the same investments over the years.

Nowadays any important event, wherever it happens in the world, may have an effect on financial markets. That’s why fund managers actively monitor our portfolios; so that they’re able to make tactical changes to take advantage of the opportunities presented by changing market conditions. If you want to keep up-to-date with what’s happening in global markets, read Andrew Milligan’s monthly Market Review.

 

If you have any questions about something you’ve read here, your 1825 Financial Planner will be happy to help. You can also post a question below.

 

This blog and any responses to comments should not be regarded as financial advice. The information here is based on our understanding in February 2018 and will not be updated.

All rights in the FTSE® All Share index vest in FTSE International Limited (“FTSE”). “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE under licence.

 

linkedin icon Print this article

Comments (0)

Comments are now closed.