How to grow your wealth over the long term and avoid getting distressed

Markets have been unsettled during the first half of 2022, causing some investors to feel nervous about their investments.

Stock markets have been rocked by a variety of problems: rising interest rates and inflation, together with geopolitical factors such as the war in Ukraine and continuing global supply chain issues.

While there’s little doubt that investors are having an emotionally tough time, in volatile times, it’s important to focus on the long term.

Rather than allowing scary headlines to derail your plans, remember that investing for the long term gives your money the greatest chance of growing in value.

This means keeping calm during periods of significant stock market volatility – and remembering that, as history shows, markets typically recover.

Take a long-term view of your investments

Because returns come in fits and starts, we always encourage clients to invest with a long-term view. Ideally, you should be happy to leave your money invested for a minimum of five years, although upwards of 10 is generally preferable.

This long-term approach allows your portfolio time to recover from any short-term shocks and the longer you’re invested, the more you will benefit from compound growth on your wealth.

Remember that investment growth over the long term doesn’t occur smoothly

Since 1900, the UK equity market has averaged a return of 5% after inflation. However, this growth didn’t occur smoothly.

Over 35 years – a common time frame when investing for retirement, for example – had you invested £1,000 in the FTSE 250 at the beginning of 1986 and left it to grow for 35 years, by January 2021 your investment might have been worth £43,595.

The table below shows the value of what a £1,000 investment made in 1986 could have been worth in January 2021, depending on how well an investor was able to hold their nerve and remain invested, despite stock market volatility.

Source: Schroders, Refinitiv data Values shown are total returns, which include dividends and share prices between 1 January 1986 and 1 January 2021.

Allow time for your portfolio to benefit from compound growth

Investing with a patient approach and allowing your money maximum time in the stock market should give your portfolio opportunity to benefit from compounding. Over the long term, this strategy tends to deliver results and grow your wealth.

During periods of stock market volatility, it’s natural to be concerned. But the smartest investors will keep their cool, remain invested, and let things take their course.

8 tips to keep your cool during difficult times

Because it isn’t always easy to stay calm and carry on when markets are volatile, here are eight tips to keep your cool through difficult market downturns.

  1. Remember that markets will fall

When investing over the long term, bear in mind that market declines are just as natural as market increases.

  1. Hold tight and keep your nerve

Resist the natural impulse to sell your investments when markets are down. One sure-fire way to make a financial loss is to sell stock when the market is in decline. So, fight the emotional impulse to react to dips.

  1. Keep a long-term mindset

Invest in assets that match your appetite for risk and keep your long-term goals in mind. We will help you understand the different types of risk and explore both how comfortable you are with risk and your capacity to tolerate it.

  1. Don’t try to predict the next decline

Remember the adage, “time in the market, not timing the market”. Investors tend to fare better when they buy and hold stock, instead of trying to time the market by buying and selling according to dips or peaks. While some investors try to time their entry into specific markets in an attempt to capture the best prices, it’s incredibly difficult to make investment decisions based on short-term data.

  1. Diversify your portfolio

Don’t put all your eggs in one basket. By spreading your investments over a range of investments, you’re also spreading the risk. This way, if one asset falls in price it shouldn’t affect your entire investment portfolio.

  1. Keep some money in an emergency fund

Make sure you have a minimum of three months’ cash in an easy-access account to cover unexpected costs. This move should help you to avoid having to sell your investments at an inopportune time.

  1. Keep investing

If you can afford to invest, do so. When markets fall, many people tend to think it’s better to stop investing until markets recover, but this isn’t necessarily true. Buying shares when markets are low means that you may enjoy larger returns when the markets rally.

  1. Instead of making lump sums investments, try regular investing

Investing small amounts of money regularly means you will be buying when markets are high and low. This is called pound cost averaging and helps to eliminate the effects of volatile markets since, over time, you end up buying the average market price.

How we can help

When it comes to managing your investments, you need someone who will ensure your strategy is set up for success, both now and in the future. We will work with you to find the right investment solutions to suit your specific circumstances.

We always start with you and what matters most. Whatever your goals, we will build a tailored financial plan and investment strategy to suit your needs.

Most importantly, we’ll be here to guide you along the way and help ensure you stay on track with your savings, so you can enjoy the future.

Get in touch

If you’re concerned about how the current market volatility is affecting your investments or want to learn more about how we can help you make wise decisions with your money, please get in touch. Email contactme@kbafinancial.com or call us on 01942 889 883.

Please note

The value of your 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.

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