Tel: 01283 701569

Experienced Independent Financial Advisers

Market exposure

2 Jan 2019


Build a portfolio that meets your needs

The earlier you commit to an investment strategy, the longer your money can work in the market. However, the world is an uncertain place at the moment. The deadline for the United Kingdom’s withdrawal from the EU is edging closer, and there is also the ongoing threat of an all-out trade war breaking out.

Investing should be for the long term. Why? Because markets and the economy have a tendency to rise over time. For investors, this should mean a return on investment for people who can ride out the ups and downs along the way – a reward for the extra risk they’re taking.

Key drivers of long-term returns
Fundamentals and changes in value are the key drivers of long-term returns, and they are possible to forecast with a degree of accuracy rather than trying to time the markets or second-guess rises and falls in prices.

But throughout history, we have seen periods of extreme volatility when there have been rallies and sell-offs time and time again for a variety of reasons. With long-term investing, you can expect cycles – periods of falling prices followed by a recovery. A key to successful investing is being comfortable knowing that there will be falls as well as rises in the market.

Cyclical in nature and prone to volatility
Many people will remember the dot-com bubble of 2001 and the global financial crisis of 2007. However, stock markets are cyclical in nature, and although prone to volatility, markets and wider economies have a tendency to rise over time. This applies to everything from share prices and earnings to wages and the price of household goods.

On the other hand, short-term returns are driven by changes in valuation and investor sentiment. These are impossible to forecast consistently, and trying to time the markets can also mean potentially locking in losses and missing out on gains.

Returns generating more returns
Compounding is one of the reasons long-term investing has the potential to give such great returns. This is the snowballing effect of your returns generating more returns. In the stock markets, compounding is usually a result of reinvesting dividend income. Companies are collectively owned by their shareholders, and their board members may agree to pay investors their share of the profits through a dividend.

Dividend-paying shares are a staple of most income-seeking investors’ portfolios. But when the income is reinvested, we can see a significant increase in total return over time. This makes them ideal for investors who are seeking growth – especially as a stable and growing dividend is seen as a sign of good corporate governance.

Political uncertainty or volatility
When people feel nervous about investing – perhaps due to political uncertainty or volatility in the stock market – a common reaction is to sell their investments and keep their money in cash. Cash is seen as a ‘safe’ asset, but it does leave investors open to the risk of inflation. Inflation erodes the buying power of your savings over time. Your account balance doesn’t change, but you can buy less with your money.

Although markets have been volatile and there remains uncertainty over the global political future, there will always be reasons not to invest and scenarios to worry about. However, you must remember that every period of time spent out of the stock markets is a period of time potentially missing out on returns.

INFORMATION IS BASED ON OUR CURRENT UNDERSTANDING OF TAXATION LEGISLATION AND REGULATIONS. ANY LEVELS AND BASES OF, AND RELIEFS FROM, TAXATION ARE SUBJECT TO CHANGE.

THE VALUE OF INVESTMENTS AND INCOME FROM THEM MAY GO DOWN. YOU MAY NOT GET BACK THE ORIGINAL AMOUNT INVESTED.

PAST PERFORMANCE IS NOT A RELIABLE INDICATOR OF FUTURE PERFORMANCE.

Footnote: Our belief is that all finacial advice should be tailored to your particular needs and situation. The content of the articles featured in here are for your general information and use only; they are not intended to address your particular requirements or constitute a full and authoritative statement of the law. They should not be relied upon in their entirety and shall not be deemed to be, or constitute advice. Although endeavours have been made to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No individual or company should act upon such information without receiving appropriate professional advice after a thorough examination of their particular situation. Please get in touch to meet with us for a full consultation.

Get in touch for more details

Please fill the form below to contact us

    Your Name (required)

    Company Name

    Your Email (required)

    Areas of concern

    Individual servicesCorporate servicesMiscellaneous

    Subject

    Your Message

    We take your Privacy Seriously. Personal information submitted to us with this form will be treated in accordance with the Data Protection Act 2018 and General Data Protection Regulations ‘GDPR’. By submitting this enquiry form you expressly consent to be contacted without prior notice or arrangement by using the contact details you have provided on the form. For further information on how we treat your personal information, please view our Privacy Policy

    I have read and agree to the privacy policy. Please retain my details to contact me.Please do not add me to the mailing list.