Discover The Merits of Long-Term Investing

Being interested in and engaged with your investments is to be applauded. But there’s a potential danger in becoming too involved with day-to-day movements and how funds are performing, worrying over the latest share price shift or market panic. Markets move up and down – that’s the very nature of stock market investing.

When markets fall it’s natural to worry about what that means for the value of your own investments.

But it’s worth remembering that losses are only on paper unless you sell. The bottom line is that historically, markets always recover and that the most dependable way to create wealth is to take a long-term approach.

There are a number of benefits of long-term investing. Here’s a few of those benefits at a glance:

THE PROFESSIONALS HAVE GOT YOUR BACK

Some speculative investors choose to invest in individual companies, known as stocks. Yet choosing steady winners is not always easy, so you may decide instead to invest in a pooled fund, such as a unit trust, open-ended investment company (OEIC), or investment trust, that spreads risk across a wide variety of shares.

This way, you pass the responsibility of choosing where to invest to a qualified, professional fund manager who will do all the legwork and selection on your behalf.

The point of buying funds is to let the professionals worry about market movements – that’s what they’re paid to do.

All you need to do is adopt a buy and hold strategy. The main idea behind buy-and-hold is that you stay invested throughout market cycles, as even missing just a few of the best days can have a major impact on your long-term returns. It is said that the golden rule is that the stock market rewards patient investors.

THE MAGIC OF COMPOUNDING

Compounding is another reason to hang on to investments for the long-term, as it can seriously turbocharge your returns.

In simple terms your money earns a return in the first year, in the second year both the original cash and the return benefit from any growth in the second year. In the third year your investment is further enhanced by any returns achieved. This snowball effect is called compound growth.

Many companies pay dividends quarterly or half yearly which means that compounding can get to work more quickly. Reinvest those returns rather than take them as income, and the growth will compound. This means you’ll see your money grow – as long as positive markets mean the income being earned continues over the long term.

If you are investing for 10, 20 or even 50 years it’s likely there will be bad years along the way. Yet calling the top or the bottom of the market during any time period is not possible without a crystal ball. No bell rings for investors when it’s time to invest. Instead, by investing regularly through the cycle and sticking to your long-term plan, you can hope to reap the rewards.

Remember, it’s time in the markets, not timing the market that counts.

Long term investing could also help you cut costs. Changing your portfolio regularly can mean you incur lots of dealing charges as you will pay a fee every time you buy and sell a stock or fund. These charges can eat into your returns.

GET INVESTED

The best way to achieve your long-term investment goals is to have a diversified portfolio.

Getting professional advice on how to do this can go a long way towards growing your savings into a meaningful fund.

SHOW YOUR WEALTH SOME LOVE THIS VALENTINE’S DAY

Protecting your wealth can go a long way to protecting the ones you love. The golden rule is not to delay on making sure the money you have worked hard for is preserved for you and your family.

Here are five ways you can help safeguard your wealth:

Insure yourself

It’s easy to make the mistake of thinking you’re too young or ‘it’ won’t ever happen. But life insurance, critical illness cover and income protection can all help when times get tough. Payouts from life cover ensures that finances are taken care of, if a personal tragedy occurs.

Other kinds of protection insurance mean you don’t have to dip into savings and investments to cover certain costs if your income drops due to illness.

If you already have cover, you might be able to get a better value policy by switching to a newer one, so a review might be in order.

Make a Will

It may not sound like an act of love, but making a Will ensures your assets and possessions are passed on to the people you choose.

Without one your wealth will be passed according to the “laws of intestate” – and not your wishes. Writing a Will can save on inheritance tax too, meaning more of your money goes to the people you hold dear.

If you’re not clear about how you want your money to be split up, particularly if you were planning on distributing it unevenly or have remarried and have stepchildren, then acrimony can ensue. 

You are never too young to make these decisions, so it’s a good thing to get sorted whenever you’re ready. Don’t forget that Wills need updating where marriage or divorce happens.

Trusts and Will Writing are not regulated by the Financial Conduct Authority.

Consider estate planning

Inheritance tax (IHT) is charged on an estate, which is the property, money and possessions left behind to loved ones who will pay 40% anything above the threshold.

There’s plenty you can do to ensure as little as possible goes to the taxman after your death. There are exemptions to make use of on gifting money to family and friends, as well as being able to hand over all types of assets, including cash, property and shares tax-free, as long as you live for seven years after making the gift.

You might also consider arranging a trust that can help minimise IHT. You can retain control of money set aside, perhaps where grandchildren are still young, for example. There are several types of trust, and specialist advice is vital to ensure the right trust is chosen for you.

Don’t hand over your money to fraudsters

Fraud happens every day and there’s a chance you might be caught with your guard down.

In many cases fraudsters can be very professional in their approach to convince you their proposition is genuine, offering you access to a sophisticated investment that offers sky high returns.

Yet it won’t necessarily be the most elaborate scam that catches you out. In a new WhatsApp con, parents are being bombarded with messages from criminals posing as their children and pleading for money.

Scammers pretend to the parent that their child has lost their phone and is using a new number.

The reasons the fraudsters give for needing money are also often sensitive — such as for an embarrassing medical issue that needs urgent, private treatment or an urgent bit of home repair.

Protect yourself by assuming that anything out of the ordinary could be a scam. Do whatever it takes to check out any request for money whether it appears to be from a loved one or a genuine professional promising eye-watering returns on an investment. And remember, if it sounds too good to be true, then it probably is.

Seek trusted advice

Professional advice can go a long way to provide peace of mind that you are addressing the needs of you and those of your family.

There are plenty of areas of financial planning worth exploring that could benefit you and loved ones.