With the spectre of Brexit casting its shadow over the stock market and creating short-term instability, it’s more important than ever to take the long view when it comes to investments. We take a look at why – contrary to popular belief – slow and steady is likely to get you more bang for your buck, and how, in investment terms, retirees are the new teenagers.
When we first think of investing, complex gambles on the stock market may spring to mind. We may be concerned that we will need to be constantly watching the market in order to move stocks and shares at the pivotal moment.
Stephen Sumner, Managing Director of Explore Wealth, explains that a longer-term approach is more likely to bring you the returns you are after. ‘To be honest,’ says Stephen, ‘we see it as a bit of a myth to sell when the market’s high, then invest when the market’s low. Statistically, there’s only a two percent chance of getting the timing right. So we prefer people take a long view, investing in a way that will stand the test of time.’
‘Few of us have the time, expertise or resources to buy a wide, diversified range of shares’, says Sean McCann, Chartered Financial Planner at NFU Mutual. ‘This is where investment funds can help. They reduce risk by pooling money from thousands of investors, using it to buy dozens of different shares.’
Taking it Slow
A slow and steady approach is especially relevant to younger people. Your career may be taking off and you may choose to invest now, to safeguard your financial future – and that of your partner and any children you may have. Resist the empty promise of short-term gambles and invest in the bigger picture. Longer-term investments will pay off over time. ‘If there is a significant fall in the market, it could take five years for it to recover,’ explains Stephen Sumner. ‘However, five years is not a long time in your 20s and 30s.’ At this stage you can afford to take on a higher degree of risk, as you have time on your side.
There does, however, come a time in your life when quick returns are the order of the day. It’s a widely-held belief that the older you are, the more patient you become. However, in terms of investments, our capacity to wait is inversely proportional to age.
There is a dichotomy that comes into play as we approach retirement age, between long term investments and shorter-term requirements, such as needing a regular income and pension. Our timescale is suddenly lessened, turning us back into teenagers in our requirement for near-instant gratification (in investment terms, of course).
‘As people’s lives change, it’s vital that they review their financial plans,’ explains NFU Mutual’s Sean McCann. ‘There are times in life when we’re able to save and invest, and other points when we need those funds to provide lump sums or income.’
This is the time to reassess your investments and take advice on how to make them pay out, so you can enjoy your retirement. It is also important to minimise the element of risk involved, as you don’t want to waste precious time waiting for your assets to recover, if there is a crash in the market.
There’s no doubt that the potential impact of Brexit is a major issue facing people nearing retirement age, who have pensions tied up in a share portfolio. ‘There is significant volatility forecast in the stock market over the next six to twelve months,’ says Stephen Sumner of Explore Wealth, ‘largely due to political uncertainty.
‘We are urging people who are looking to retire in the next year to exercise a free option,’ says Stephen. ‘This involves switching out of the stock market into a safe haven such as a cash deposit account, thereby minimising risk.
‘In this way, their investment is Brexit-proofed. If the stock market falls it won’t adversely affect them.’
Investment funds are also a good option when the market is unstable. ‘Much of the return from funds is driven by reinvesting the income generated, and staying invested, even when the market is volatile,’ explains Sean McCann.
With storm clouds gathering, there has never been a better time to seek expert advice, to ensure your investments weather any storm on the horizon.