As global economies continue to recover from the coronavirus pandemic, supply chain issues and rising prices have seen the cost of living rise.
While the UK struggles with the highest inflation of all G7 countries – reaching 9.1% in May according to the Office for National Statistics (ONS) – Russia’s invasion of Ukraine has caused even greater economic uncertainty.
This has led to short-term volatility in world markets and might have left your clients worried about their investments. Some anxiety is understandable, but in these situations, the answer is most often to stay calm, stay patient, and stay invested.
Keep reading to find out why time in the market is much more important than timing the market for your clients and their investments.
A look at the FTSE 100 over the 12 months to June 2022 shows the short-term market volatility of recent months. While the economy continues its slow pandemic recovery, Russia’s invasion of Ukraine on 24 February led to a dip that reached its lowest point in early March.
Source: London Stock Exchange
Since March, the index has regained its generally upward trajectory.
Investments should only ever be entered into with a long-term goal in mind. It is also important that clients understand their attitude to risk and their capacity for loss.
The long investment term allows your clients’ investments to ride out periods of short-term volatility. A firm grasp of risk, meanwhile, ensures that they have the best chance of reaching their goal while taking the minimum amount of risk.
This means avoiding high-risk trend-chasing and trying to time the market, a strategy that rarely works, even for the most experienced fund managers.
At Boolers, we can use our decades of combined experience in the markets to help your clients:
Remember the importance of “time in the market not timing the market”
Recent figures produced by Schroders looked at the value of a £1,000 investment made in 1986 across three UK indices – the FTSE 100, FTSE 250, and FTSE All-Share index.
It then looked at the potential effect of trying, and failing, to time the market.
An investment of £1,000 in the FTSE 250 index made in 1986 and left alone, could have been worth around £43,500 by January 2021. Trying to time the market – by selling stock at the onset of a dip and failing to re-purchase when the market recovered – could have led to your client’s investment being worth just £10,600 over the same period.
That’s a difference of around £33,000 and is the result of missing out on 30 of the best investment days over 35 years.
Note: Values shown are total returns, which include dividends and share prices between 1 January 1986 and 1 January 2021.
While the effect on the other three indices is smaller, the difference is clear. But why do a few missed days have such a huge impact?
Stay invested for potential investment growth and the effects of compounding
Missing the so-called “best days” could have a huge influence on your clients’ investment returns, but missing any day is bad news.
We know that the general trend of the market is upward. Any day when your clients’ funds aren’t invested is a day when they are missing out on potential investment returns. Not only that, but they will be missing out on the effects of compounding too.
Compounding, effectively receiving interest on interest, can grow wealth quickly. But long-term investing is still key. This is because it gives your clients’ money the longest time to compound and so the best chance of meeting their goals.
Get in touch
If you have a client who would benefit from help managing their investments, please get in touch.
Our expertise and experience could help your client to better manage their emotions, avoiding knee-jerk reactions while helping them to make their aspirations a reality.
Email email@example.com or call 0116 240 7070.
The value of investments (and any income from them) 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. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.
“At Boolers, you know that things will be dealt with properly and professionally. A real safe pair of hands!”
“I have always found the quality of advice, technical knowledge and level of service is second to none. ”
“Thank you to all of you for such a wonderfully smooth transaction! Hope we can do it again some time.”
“Boolers provided excellent advice when we needed it most.”
“Boolers have provided myself, family and business with pension and investment advice for over 30 years and continue to provide a high quality professional service to us all on an ongoing basis.”
“Chris Ball has been our Financial Adviser for many years and, from the start, we have been impressed with his strategic sense, his deep knowledge and his skills in helping us build our own successful retirement. He understands our aims and how to achieve them and has taken great care of us throughout. ”