When It Comes To Investing, Patience Pays

by | Apr 9, 2020 | Investment Advice, Back to Blog

Savings Goals

Most of us have some form of savings in place. Savings can be for a specific purpose, like paying for your children’s education or paying off your mortgage early. You may just want to build up a “rainy day fund” that can help you deal with unexpected costs or finance some home improvements, or you may already have a lump sum that you want to put aside for the future.
Currently, deposit rates aren’t as attractive as they once were, but there are options available to you that can get your money working hard for you. It might be time to look into a longer-term plan for your savings. Longer-term saving typically involves some element of risk. While the majority of investment products involve an element of risk, over the long term they may give you a better return than a simple savings account

Good Investment advice in Donegal or anywhere is crucial to helping you plan for a secure future, with as little stress as possible. It has been proven over the years that investing in stock markets is one of the best ways to achieve a decent return over the medium to long term.

So, whatever you are planning to save on a regular basis, for say college fees or you have an sum you wish to invest. Investing in stock markets generally is good idea, provided you understand the risks involved and you are in the correct investment for you. This is where advice is key.

The idea of investing in anything is to get a better return that holding money on deposit, investing in stock markets is the same,  the aim is to deliver better returns over the medium to long-term. In uncertain times, when the markets are volatile, some investors get nervous, losing sight of their investment objectives. Many are tempted to postpone new investments, and even to sell their current holdings with the aim of reinvesting when the stock market rebounds. However, if you do sell your investments during a correction, you will risk turning a potential loss into a real one and you may miss out on any subsequent market rebounds.

Patience-when-investing-pays

 

Unnerving times

During times when stock markets are volatile, it can be unnerving. It’s important for you to focus on long long-term goals and remember these three important things about investing;

  1. Stock markets go up over the long term
  2. Large peak-to-trough falls in value in stock markets are inevitable
  3. Historically, the biggest gains tend to follow the biggest falls

The challenge is always to hold your nerve, we don’t know when the downturn will end and when the upturn begins but we do know that over time you may benefit from simply being patient and remaining invested.
As always, we recommend that clients speak with their Financial Broker about the options of sticking with their financial plan and staying invested in a fund that matches their risk-return appetite.

Warning: Past performance is not a reliable guide to future performance
Warning: The value of your investment may go down as well as up.

1). Stock markets go up over the longer term

Despite recessions, periods of stock market volatility, and wars, the US equity market, as represented by the S&P 500 total return index, has delivered a positive return in US dollar terms in 40 years out of the past 50 years; that’s 80 percent of the time.

Warning: Past performance is not a reliable guide to future performance
Warning: The value of your investment may go down as well as up.

2). Stock market falls are inevitable

Despite strong market gains over the long-term there have been numerous large peak-to-trough falls in the S&P 500 total return index. If we roll the clock back to the 1950’s we see that big peak-to-trough falls in markets happen perhaps more regularly than we might think.  “Bear markets” are broadly defined as peak-to-trough falls of 20% or more.  For an example, a study, if we look at the US Stock market, as represented by the S&P 500 total return index and include all falls of 19% or more in US dollar terms. The study shows that falls of this magnitude occur roughly once every 5 years, average a dip of 30%, and the average peak-to-trough period is typically 1 year.

Source: Bloomberg, as at 32/12/19. S&P500 total in USD

Warning: Past performance is not a reliable guide to future performance
Warning: The value of your investment may go down as well as up.

3).The biggest gains follow the biggest falls

History shows us that markets generally bounce back strongly from large setbacks. Taking the same periods above and looking at returns over the 12-months that followed the sharp falls we can see that market bounced back quickly.

Source: Bloomberg, as at 32/12/19. S&P500 total in USD

Warning: Past performance is not a reliable guide to future performance
Warning: The value of your investment may go down as well as up.

Warren Buffett said:

“The stock market is a device for transferring money from the impatient to the patient”

Key Message

The key message from these three points is that being patient and remaining invested can result in good outcomes. Even if you time things right and get money out as markets are still falling, you need to again time things well to get back in for the market bounce. In fact, by missing out on a very small number of days with strong returns an investor can ruin their longer-term returns. Right now, we recommend you should speak with a Financial Broker about the options of sticking with your financial plan and staying invested in a fund that matches your attitude to risk and return. There is lots of evidence to  help illustrate the power of remaining investing and the impact of missing out on those strong days:

Source: Lipper,a thompson Reuters company, as at 31/12/19.  S&P500 total in USD

Warning: Past performance is not a reliable guide to future performance
Warning: The value of your investment may go down as well as up.

These three simple messages are well-understood by investors when things are going well but often get forgotten or questioned in times of stress. In Advice First Financial we work hard to help our clients manage their portfolios and keep their journey smooth for their given level of risk. We ask for our investors to be patient and understand there will be times of unease and sometimes the best thing to do is remain patient.

If you have questions or need advice on Mortgage Advice Donegal, call 074 9103938 or email now.

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