Longer term investment options

Patience is a virtue as they say. When it comes to investing this is certainly an important adage to remember.

Investing for the long-term is key to being a successful investor. The benefit of long-term investing is the time spent in the market, rather than trying to “time” the market in terms of when you buy and when to sell. That’s because a longer time investing in the market gives your investments a better opportunity to grow.

In investment terms, long-term is five years at the very least, but preferably much more. The longer you’re prepared to stay invested, the greater the chance your investments will yield positive returns.

The Barclays Equity Gilt Study 2024 – which examines UK asset class returns from 1899-2023 – found that over two years the probability of shares outperforming cash was 70%, and over ten years, this rose to 91%.

Taking a long-term view on investing builds wealth, can reduce risk and leverages the power of compounding.

Compounding can seriously turbo-charge your returns as long as you have plenty of time on your side.

This is simply when your returns are added to your original investment and earn returns of their own.

Compounding applies to money held in bonds that pay annual interest, shares that pay dividends (the share of company profits distributed to investors), and funds that can pay either depending on what the fund is invested in.

As long as you choose to reinvest those returns (rather than having them paid out to you, known as “taking them as income”), the growth will compound.

Investors must accept that there is no way to avoid risk when investing, but there are ways to reduce risk. Investing for the long-term is a core strategy to smooth returns.

Market shocks can be followed by sharp recoveries. Indeed, many of the best days of market performance typically follow the worst.

History shows that markets do recover. The most recent example is on Donald Trump’s so-called ’Liberation Day’ when the markets took a turn for the worse. They have already recovered most of their losses.

Further back, those who cashed in their investments at the height of the global financial crisis in 2008 would have missed out on the substantial gains markets made during the subsequent years of recovery.

As long as you’re in it for the longer term then there’s time for recovery. Volatile and uncertain times call for patience and resilience among investors.

The longer you keep your money invested, the more time it has to grow which reduces the risk of your investment falling in value.

Investing can feel daunting particularly in times of uncertainty, but as was shown in the Barclays Equity Gilt Study 2024 – the probability of shares outperforming cash prevails.

It might be tempting to leave money in a cash savings account where you can’t lose money. However, it’s correct that the balance of a savings account will not go down, but in the long-term it could lose value.

Cash savers often fail to consider the impact of inflation that diminishes the value of savings over time.

As long as you have put together a diversified mix of investments, you can aim to have a portfolio best equipped to weather all sorts of market conditions.

Being diversified is where your money is invested across a range of investments that expose your money to different asset classes – bonds and shares – regions and sectors. It is important because spreading your money helps provide protection during times of market uncertainty and reduce the volatility of the value of your investments.

You have the choice of thousands of shares to hold directly, as well as funds that can spread your money across lots of assets in one go, helping spread risk. There’s the option to use actively managed funds run by a professional fund manager, an index fund which tracks shares of companies in a given stock market as well as Exchange Traded Funds (ETFs) which do the same job but are themselves listed on the stock market and traded in the same way as individual shares.

Identifying long-term trends can help with strong returns. So if you believe that, say, Artificial Intelligence (AI) is a winner, you can look for companies in this sector to be included in your investments either as a directly held share or in a fund.

Clare Francis, Savings and Investments Director at Barclays Smart Investor, explains: “Crucially it’s not about chopping and changing every time the markets and trends shift. It’s about spreading your money so you’re invested in a diversified way that stands you in good stead to weather different market conditions and economic cycles.”

This fund invests primarily in a diversified portfolio of UK equities. Companies are selected based on their financial health, dividend sustainability and growth potential. The fund, which aims to provide investors with a combination of income and capital growth, is an option for investors looking for UK exposure.

The Fidelity Index World fund is a fund that tracks the MSCI World (Net Total Return) Index. This tracker fund offers a simple, low-cost, and effective way to achieve instant, broad diversification across the world’s major developed economies.

The fund holds around 1,300 companies which reduces the reliance on any single business, sector or region performing well. Further, the impact of one area of the fund performing poorly is diluted by the vast number of holdings across diverse areas.

An Emerging Market Equity fund represents an opportunity to increase a portfolio’s exposure to some of the fastest evolving economies in the world, such as China and India. Within a globally diversified portfolio, and with a long-term investment horizon required to tolerate the inevitable volatility that comes with investing in Emerging Markets, an allocation to this often-overlooked asset class is worth consideration.

This is not a personal recommendation and should not be seen as independent advice.

You should remember your investment goals and consider if an investment helps you build a diversified and balanced portfolio. The value of investments can fall as well as rise and you could get back less than you invest.