Only 51% of people achieved what they wanted with their investments in the last five years, and many more are dissatisfied, according to research from Schroders. The findings suggest that a lack of confidence in financial plans and investment decisions is leading to investors tinkering.
Whilst it’s often recommended that you invest with a five-year timeframe, the research suggests this often isn’t the case. Investing with a longer timeframe in mind gives you an opportunity to overcome short-term market volatility. However, the average length of time that people stay invested with products before moving their money is just 2.6 years. This is highlighted by the fact that just 18% of people stuck to their initial investment plan after experiencing a period of market volatility. This compares to the 70% that made changes to their risk profile.
Why is having a plan so important when investing?
When you first start investing, it’s likely you’ve made the decision with a goal in mind. Perhaps you’re hoping to deliver returns that will lead to a bigger pension pot. Or maybe you simply want your savings to grow to keep pace with inflation. Your reason behind investing should inform your overall plan and help ensure you keep on track. From the level of risk you take, through to how long you’ll be invested for, a plan helps you keep the reason for investing in mind.
5 tips for improving confidence in your investment plan
1. Understand your investment risk tolerance
The findings indicate that concerns around volatility and investment risk often leads to investors making decisions to change their portfolio. Understanding why you’ve invested in certain assets or funds according to their risk profile can help alleviate some of these concerns. Knowing that the assets you’re invested in have been picked to suit your overall attitude to risk and financial situation can give you the confidence to step back and stick to the plan.
2. Regularly review performance
Keeping an eye on your overall performance and understanding what it means for your overall goals is important. Your investment portfolio should be reviewed on an annual basis, along with your wider financial plans. However, you may choose to keep a closer eye on your investments, allowing you to track rises and falls. According to the report, 77% of people check their investments on at least a monthly basis, but checking too regularly can lead to making rash decisions.
3. But keep the bigger picture in mind
Whilst reviews are important, it is just as crucial that you keep your long-term plan in mind. Should values fall, even temporarily, it can knock your confidence and you may be tempted to tinker with your portfolio. The Schroders research indicates that some are being swayed by short-term volatility, potentially putting longer-term gains at risk. If you’re investing with a timeframe of say ten years, try not to focus on how the value of investments changes month-to-month, but rather over the long term?
4. Understand the impact of market volatility
Markets naturally experience highs and lows, affecting the value of your investment. Understanding what fall within ‘normal’ parameters for the assets you’re invested in can boost your confidence and help ignore the short-term impact. When looking at historical data from stock markets, investments typically deliver returns over the long term. Whilst past performance shouldn’t be relied on as an accurate indicator for future performance, it can calm your nerves.
5. Work with a wealth manager
When looking at your investments alone it can be easy for doubt or bias to creep in. This is an area where we can provide support. Working with a wealth manager to build your investment portfolio in line with your goals and wider financial plan can give you the confidence to proceed. Our goal is to work with you so you can have complete confidence in your finances now and the future.
Please note: The value of your investments can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
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