Many of our clients here at YorWealth are long-term investors. They’re able to benefit from a long-term investment strategy, spanning at least 10 years, and in many cases, even longer. This kind of investing helps to smooth short-term dips in the market, typically resulting in very positive returns.
Resist the urge to check
When it comes to your investments, we know you want to be sure things are moving in the right direction. That urge to check on the value of your investments weekly – or even daily – is one that many of our clients are unable to ignore, despite knowing they won’t need to access the investment for several years.
For example, the value of your house is largely irrelevant unless you are looking to sell in the near future. The same is true of your investments. Checking your long-term investment frequently can create unnecessary worry and anxiety in the short-term. It can even lead to panic-driven action, which might then affect the long-term performance of your portfolio.
Due to the volatility of markets both during and after the Covid-19 pandemic, the Ukrainian war, and the threat of American tariffs, we have seen more and more clients falling into this trap of checking and panicking. It is our job as financial advisers to help prevent short-term worries becoming a long-term headache.
Consider bond prices
Let’s consider bond prices as an example. The fall in bond prices in recent years has been driven largely by monetary policy. Increased cash interest rates have made bond rates look less valuable, and therefore prices fall.
If interest rates are expected to fall, this can increase the attraction to bonds once again and prices will recover. Someone who checks the value of their investments every day might see the fall in value of the bond allocation and think selling is the best thing to do. If they act on that initial impulse and sell, they will then miss out on the recovery when interest rates fall, turning a short-term drop into a long-term one!
Of course, we know that there is a greater psychological effect when bonds are the cause of falling portfolio values. We expect equities to rise and fall in value, whereas bonds are not traditionally expected to be as volatile.
While no investment can guarantee a good return, historically, bonds have remained stable even when equity markets have dipped. So, with the recent fall in bond prices, it has been investors with the least experience in facing market volatility who were most impacted… and the most tempted to sell quickly.
Focus on the future
Regardless of what is causing the current, short-term drop, remember why you are investing in the first place. If you don’t need to access the money for another 10 years, it’s no use worrying about fluctuations now. Focus on the future and don’t be tempted to make impulse driven changes to your investments.
Our best advice for a long-term investment strategy: don’t obsess until you need to access!
Next time you feel the urge to check your portfolio daily, remind yourself of your long-term goals, and trust that steady progress over time will serve you best. If you ever feel unsure, your adviser is here to help keep you focussed on the bigger picture. Our services are fully tailored to your needs, so please get in touch if you want to discuss your options.