Investment Lifeboat Drills
Investing your hard-earned money can sometimes be emotional, and, from time-to-time, very scary. This is certainly the case when we are faced with the constant barrage of tsunami-sized waves of bad news that the financial press seem to like to throw at us.
As lifetime investors, whose focus is on patiently awaiting long-term investment returns, we’d be forgiven for having the occasional wobble, and indeed self-doubt moment, when it comes to how our personal money is invested. Even we, at Longhurst, experience these emotions.
When the markets encounter their typical annual 10% temporary drops, we may not flinch, because we’re confident that the markets will soon recover (as they have always done).
However, when the markets enter more seriously choppy waters, and encounter their typical 5-yearly 20% drop (known as a bear market), our confidence may be tested, potentially to breaking point. We could panic into making some rash changes to our portfolios, even when we know, from history, that this happens periodically; this time is not different; at some point in the future the markets will recover, and continue to advance.
So, do we jump ship? Sell and go into cash? Then invest again when we know the market is on the up? We can time this thing, surely?
A successful investor knows that, during these moments, you must stay invested, remain in the fight, and leave your perfectly-built lifetime investment portfolio alone. If your financial plans haven’t changed, nor your time horizons, then your investment strategy shouldn’t change either.
At Longhurst, we carry out annual Investment Lifeboat Drills for all of our clients. Here, we will provide you with a reminder of the potential ups and downs that the investment portfolio you are invested in could deliver (appropriate to your risk profile), showcasing the average annual return, the best annual return, and the worst, for a set period of time.
This way, if you do experience choppy waters, you are already prepared for them. You know that volatility is just part of the risk/reward process of earning equity returns. Instead of panicking, you remain calm. Instead of contacting us to talk through changing your investing portfolio, you choose to go for a walk, or… go for a swim. This is because you are wise, and understand that successful investors choose to go below decks, and ignore the media storm.
Actual artist’s impression of Chris keeping his line of investors from making the wrong decision, at the wrong time, for the wrong reason.
(Please note that the value of investments can rise and fall and are not guaranteed. Past performance is no guarantee of future returns, you may not get back the sum invested, especially in the short term.)