What’s the Best Long Term Investment Strategy?

Posted on June 7, 2020

Attaining a good measure of financial security and independence in old age has passed from a prudent to essential course of action.

The fact that we are living longer in the UK is starting to create financial problems for society as a whole: namely, how to fund care and other provision for elderly people who are less well off. Relying on state provision has been unwise for some time and is only likely to become more so: beyond individual party policy, and even political will, lie some uncomfortable economic truths.

Savings are Unlikely to be Sufficient

Today, cash brings in little income. Interest rates on deposits have been low for years; inflation can actually result in the real term value of cash savings diminishing over time.

Decide what your Target Income is

In our opinion the best type of investment strategy is one that will ensure a regular and adequate income in retirement. Your first step is to work out what you want that income to be. It’s generally reckoned sensible to aim for no less than half your final salary (that is, your expected salary at retirement) – and, preferably, two thirds of the amount.

Setting that income goal will help you determine and shape your investment plan: how much you need to invest initially, and what your short, medium and long term goals are for growth, or earnings, or both. Currently, long term investment is the best strategy for most people. Today’s financial environment is an uncertain one to say the least, and investors should normally expect to commit for at least ten years.

Start Early, even if you Start Small…

Don’t fall into the trap of thinking that committing £200 monthly will achieve little.

… and unlock the Power of Compounding

Accumulated earnings, or ‘compound growth’, is a key concept. All it means is that, when your investments earn money, you re-invest what you have earned. In the long term, the difference in the value of your investments could be significant if you have the discipline to treat early returns as a bonus to be forgotten about.

Compounding should not be relied on: there will very likely be times where the cash value of your portfolio will not grow. Nor should it be substituted for your ‘seed capital’ contribution: even when you’re seeing good returns, resist the urge to reduce the amount of your earnings that you are putting into your plan.

Have a Clear Plan of Action…

A diverse portfolio is generally recommended, but be sure it is diverse and not scattered. Random investments into different asset classes with little attention to asset allocation are unlikely to pay off, as are decisions made without a clear timeline and, indeed, any decisions made hastily.

If you don’t know what ‘asset classes’ or ‘asset allocation’ are, click here.

… and Don’t Get Emotional

Financial markets move in cycles, and being swept up in the prevailing sentiment is always a bad idea. Being persuaded by positive emotions to buy during an upswing is often just as unwise as being persuaded to sell by the negative emotions that accompany a downswing: a downturn may present an opportunity to invest at a lower price. And don’t waste time lamenting missed opportunities: there are always investments that buck the trend, but this year’s star performers could be next year’s abject failures.

Decide How Much Risk You Want to Take

By spreading risk in a measured way, investors can benefit from bright spots and cope with any weak performers.

Passive vs Active Strategies

A key question for any investor is whether they wish to take a more passive approach – sharing in broadly average performance across the asset classes chosen for their portfolio – or would prefer more active approach.

Global market conditions can, as recent history shows, produce stomach-churning dips for even the most cautiously invested portfolio. Active management attempts to soften such market downturns through careful stock selection, whereas passive investment is a low cost and useful means to invest in less volatile conditions to simply ride an asset class upwards.

Value Investing

The principle behind value investing is the assertion that the market is sometimes wrong about the value of an individual stock. More simply, that there are bargains out there to be snapped up and profited on once the market either realises its mistake or catches up on what it’s missed. A more actively managed portfolio run along these principles offers the possibility – but not certainty – of above-average performance, but it will involve more management fees, win or lose.

Risk – and risk assessment – is central to investing, and you can find out more about it here.

Review Often

Even passive strategies will benefit from regular review. Market conditions vary both within and across asset classes, and the risk profile of any investment could be radically different after twelve months. Timely re-assessment of where you are on the life cycle of your overall investment strategy will allow you to make adjustments that are carefully considered.

The Planner’s Role

We see the role of an investment planner as the utilisation of knowledge, skill and experience to maximise a client’s prospects of achieving their objectives, rather than promising massive returns from speculative stock-picking. This approach means focusing first on the investor, to identify an investment strategy involving a mix of asset classes with which they feel comfortable, particularly in terms of risk.

We aim to guide you through the options available, identify a portfolio mix to match your needs and keep its suitability under review – so that, one day, you can look back in satisfaction at your investments’ performance.

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.

No guarantee can be given that the information provided is accurate in the present or the future. It is not intended to constitute either a statement of applicable law or financial advice, and responsibility cannot be accepted for any subsequent loss following activity or inactivity by any individual or organisation. Indeed, such information should NOT be acted upon without first receiving appropriate and specific professional advice.