When it comes to investing, timing the market is a losing game. You may have heard the phrase, ‘time in the market beats timing the market’. This investment strategy reminds us to be mindful about moving cash and the impact of emotional investing. Instead of reacting to market changes, long-term investing protects against the risk of disinvesting at the wrong time. We share practical advice to help you make more informed investment decisions.
The problem with emotionally driven investing
As the saying goes, investments will rise and fall, so a long-term strategy ensures you are prepared for market shocks. If you try to time the markets, you’ll inevitably make an emotionally driven decision that could result in huge financial losses.
Trying to predict the financial markets and making impulsive changes could significantly damage long-term returns. Market movements are highly unpredictable, and panic ‘buying high’ or ‘selling low’ can be very risky. Fear, greed and overconfidence can damage your investment strategy. Rash decisions can cost you dearly in the long run.
Don’t rush to invest as soon as interest rates drop. Never react to pressure from anyone promising ‘too good to be true’ opportunities, and proceed with caution if someone offers you ‘guaranteed returns’. Instead, a long-term investing approach allows for compound growth, helping you grow your wealth more effectively than short-term trading.
When investment decisions are emotionally driven, or you’re holding too much cash when markets improve, then you could miss out on potentially lucrative returns. Instead of holding cash in one big pot, a more structured, long-term investment strategy could provide you with better returns. Your investment portfolio will be more resilient to market volatility and shocks.
The benefit of a passive investing strategy
At Balance: Wealth Planning, we believe in taking a more passive, long-term investment strategy because, overall, this generates better returns for our clients. Our aim is to minimise your investment costs and help you manage any emotional reactions to investment movements. We spread our clients’ cash balances across three different ‘buckets’.
Instead of cash being placed in one big pot, your money is divided up to create a more efficient investing strategy. This helps us to achieve the right balance between savings and investments, giving varying levels of access to cash in each bucket.
Below is a simple example of how our bucket strategy works:
- Short-term Bucket: this pot gives safe and easy access to cash.
- Medium Bucket: this pot balances spending with compound growth.
- Long-term Bucket: this pot contains inflation-beating investments.
This three-bucket passive strategy promotes long-term growth, better investment returns, and greater security for our clients. They retain the ability to access their cash quickly, while saving and investing for the future. Our investment approach is well-diversified to reduce risk.
What does diversity mean when investing?
Diversification is also important for your portfolio, as this will help to protect your investments from market volatility. Funds are spread across different asset classes, such as stocks, bonds, property and cash, to reduce overreliance on a single type of investment. This acts as a shield against market shocks, and poor performance is offset by gains in another area.
Our investment approach focuses on steady wealth growth. We have two successful, well-diversified in-house portfolios that consistently outperform market benchmarks.
Our Core portfolio focuses on simple, low-cost investing with good returns. Our Good Practice portfolio uses a responsible investing criteria, tilted towards companies that demonstrate good practice. Both portfolios offer 10 risk levels, so you can choose the one that suits your investing attitude and individual needs.
Financial Adviser, Nottingham
Emotionally driven investing is harmful and can lead to significant financial losses. By taking a long-term, passive approach to your investment strategy, your portfolio will be prepared for market volatility. Likewise, inaction can also lead to lost investment growth. When people are fearful to move their money into a suitable savings and investment strategy, the value of their money will erode over time. Inflation will inevitably impact the value of your cash.
At Balance: Wealth Planning, we can advise you on your investment strategy. Our financial planners will help you take control of your investing approach, so you can maximise your money and enjoy a more secure financial future.
Do you need investment advice? Get in touch with our financial planning team.
Sources:
(Balance: Wealth website)
https://tribeimpactcapital.com/impact-hub/time-in-the-market-beats-timing-the-market/
https://www.sterlingandlaw.com/five-emotional-investment-decisions-to-avoid/
https://www.investopedia.com/articles/basics/10/how-to-avoid-emotional-investing.asp
