Time in the market, not timing the market
Naturally, changes in the market cause people to panic. Is my money invested in the right place? What if my funds drop? It’s too easy to let emotions drive your financial decisions, and this is the primary reason why people fail.
At The Money Partnership, we try and help people look at the bigger picture. Instead of making decisions based on fear, we encourage people to plan for the future and invest based on long-term goals. Forget waiting for the perfect time to invest, it’s compounding that will deliver you results over time, so the earlier you start the better.
Here are some tips on how to put your emotions aside and maximise your growth potential…
Stop checking your investments every day
Investments will go up or down, so long as they’re moving in an upward trajectory over time, then you’re doing something right. Though tempting, obsessively checking your portfolio will only make you feel anxious and could lead you to make impulsive decisions. You need to allow your money time to grow and stay focussed on those long-term goals.
Take house prices, for example, they might seem like they’re jumping all over the place, increasing immensely over the past year and then predicted to fall next year. But over time, house prices go up in value. 20 years ago, they stood at £89,597, 10 years ago at £170,365 and now you’re looking at £292,118!
Align your decisions
When it comes to doing a bi-annual or annual review of your investments, here are some questions you should be asking yourself…
Why are you investing?
Would your goals change if your investments went up or down?
Is your portfolio aligned with your attitude to risk?
Is your portfolio diversified?
This is your opportunity to make thoughtful decisions aligned with your goals. For example, if your circumstances have changed, perhaps your risk tolerance has also.
Reviewing your investments on this basis can help you to shift the focus away from any short-term discomforts.
Tune out the headlines
Though it’s important to stay up to date with what’s going on in the market, try not to let sensational headlines trigger an emotional reaction. You have to remind yourself that your circumstances are unique and that not everything you read will apply to you. Plus, not everything you read is actually true. Be careful where you get your information and take things with a pinch of salt.
You can’t predict the future
The last 2 years have taught us that anything can happen; no one really knows what’s around the corner and what effect this will have on the market. Not even forecasters can predict what will happen in the market short-term, which is why you shouldn’t buy or sell at dips and peaks. Again, ‘time in the market, not timing the market’. Let’s take a look at what can happen to investments over time…
“If you look at rolling 3-month periods over the last 25 years, the FTSE 100 has been up 70% of the time, and down for only 30%. This means that if you buy a stock within the FTSE 100 and held it for 3 months, 70% of the time you’d be making money. If you extend the period to a rolling 10 year hold, the data is positive 98% of the time.”
In short…
Don’t make snap judgments
Ensure your portfolio is diversified
Don’t assume bad news will cause your investments to go down
Ignore market fluctuations
Have confidence in your strategy
Think about your future (years not days)
For more information and guidance on investments, please don’t hesitate to get in touch – 01633 987070.
