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  • A test of mind over matter

    We look at why it’s essential to hold your nerve and think long term when you invest.

    Important notes

    This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

    One of the biggest fears as an investor is the fear of missing out – with fast paced and sometimes volatile markets, it can quickly feel like there’s a lot to miss out on.

    Buying and selling investments to bank the profits or to avoid sudden dips in the market might seem like a good idea at the time. But it rarely leads to the best outcomes in the long run.

    There’s a fine line between waiting for a good trade and pulling the trigger out of fear, so don’t let your emotions get the better of you.

    This article looks at why long-term investing is so important but it isn’t personal advice. If you're not sure if an investment is right for you, please ask for advice.

    Human nature can be costly

    We’re emotional beings by nature, and investing can be a rollercoaster of emotions at times. There’s the thrill and excitement when the market goes up, but panic when it falls.

    The way our emotions change during the highs and the lows is why lots of us decide to invest when markets are doing well and sell when markets are falling. This goes against basic, good investment practices like thinking long term.

    Some investing do’s and don’ts to bear in mind:

    • You do want to find high-quality companies and investments at the right price that you can hold for a long time.
    • You do want to collect steady dividends or growth over the long term.

    • You don’t want to jump in and out of investments trying to time the market.
    • You don’t want to get swayed by short-term price movements.

    Market falls and comebacks

    Reading blaring headlines or seeing the value of your investments fall isn’t fun. It can be worrying. Sure, there’s been some bumps along the way, but that’s the nature of investing.

    Here are some of the biggest falls in value of the UK stock market since 1985 and how long it took to recover. For these examples we assumed you’d invested at the highest point before the market started to fall.

    UK stock market performance following drops

    Past performance isn’t a guide to future returns. Source: Thomson Reuters Eikon, 19/07/2021. Where no figures are shown data is unavailable.

    The key point to all of this is tough times don’t last forever, and markets eventually recover.

    It’s important for investors to think back to their long-term strategy and stay resilient when markets are jittery. Make sure you’re happy with the level of risk across your investment portfolio – the more risk you take on, the bigger the potential drops.

    When markets are on a downturn, you could see this as an opportunity to top up your investments at lower prices. Of course, there are lots of factors that can change an investment’s price. It’s essential to do your research and decide why the investment price is low, and if it can recover later on.

    You don’t know what’s around the corner. But holding onto these investments instead of impulsively selling, might benefit you in the long run when prices eventually recover.

    Investing in rising markets

    When market prices are soaring on the other hand, lots of us want a piece of the pie and end up overpaying for stocks.

    It’s essential to have the same mindset and approach to investing if the market is rising, or if the market is falling in the short term. You might think we sound like a broken record when we tell you to think long term when you invest – but we really mean it. That means five years or longer.

    Historically, shares have typically delivered better long-term returns than other investment choices like bonds, property or cash but that shouldn’t be seen as a guide to the future. It’s essential to do your research and think about what the world could look like in the future. Which companies will adapt and grow with change?

    If you aren’t thinking about owning a stock for ten years, don’t even think about owning it for ten minutes.

    Warren Buffett

    If you find yourself selling frequently trying to lock in that short-term profit, maybe it’s time to consider, is this leading to the best outcome for the long-term?

    Diversification is key

    If you’re regularly dipping in and out of the same investment to try and benefit from the highs and lows, you open yourself up to more risk from a lack of diversity in your portfolio.

    Diversification is an investing essential to help manage any bumps in the road.

    We use diversification to help smooth out the ups and downs a portfolio could go through if you hold just one, or a few investments. Whether it’s types of companies, types of investments – like shares, bonds, and property – different parts of the world, or investment styles. There are lots of ways you can do it.

    Picking individual companies isn’t always the answer – it’s certainly not the easiest way – to start diversifying. An alternative investment option is funds, where professional fund managers make the underlying decisions and choose a selection of investments. It is important to regularly review all your investments to ensure they meet your objectives and attitude to risk.

    Ready to invest?

    Whether you’re new to investing or with years of stock market experience, hand-picking individual company shares with long-term potential isn’t a walk in the park. It takes countless hours of research to find the stand-out companies of the future.

    We think funds are a great option for simple and effective long-term investing. Funds pool together money from lots of investors. They invest in a collection of investments which are chosen and run by a professional fund manager, so you’ll benefit from the manager’s knowledge, expertise and research into lots of different companies.

    Funds come in all shapes and sizes. Some funds invest purely into company shares, which are better suited for investors willing to accept more risk. Others hold a mix of investment types like shares, bonds, commodities and cash for a more conservative way to invest.

    To help you get started, our investment research team have put together some fund ideas. But they’re not a personal recommendation to buy.

    Investing in funds isn’t right for everyone. You should only invest in funds if you have the time and know-how to diversify your portfolio to help reduce risk.

    Before investing it’s important to check the fund’s objectives align with your own, understand the fund’s specific risks and if there’s a gap in your portfolio for that type of investment.

    Remember, all investments go down as well as up in value, so you could get back less than you invest.

    Investment ideas

    AXA WF Framlington UK

    • Invests in UK companies across a range of sizes.
    • Focuses on high-quality companies.
    • Invests in higher-risk small and medium-sized companies.

    Find out more

    Find out more

    BNY Mellon Real Return

    • A conservative way to invest.
    • Could offer stability to a more adventurous portfolio.
    • Holds a mixture of different investment types.

    Find out more

    Find out more

    AXA WF Framlington UK

    This fund invests in UK companies across a range of sizes. The fund manager looks to pick companies he thinks have lots of potential to grow over the long term – though of course there are no guarantees.

    The fund invests more in higher-risk small and medium-sized companies than some other funds. When building a well-rounded portfolio for long-term growth, think about balancing with funds focused on more established companies.

    The manager's focus on high-quality companies means it could also sit well alongside a fund that invests in companies believed to be overlooked and undervalued. His focus on broader themes and the way they impact individual companies makes it quite different to other funds.

    This is an offshore fund, so investors aren’t normally entitled to compensation through the Financial Services Compensation Scheme.

    More about this fund, including charges and how to deal

    AXA WF Framlington UK Key Investor Information

    BNY Mellon Real Return

    This fund offers a more conservative way to invest compared to a fund that primarily invests in shares. It could be a good option to offer better returns over the long-term compared to cash, without being too exposed to the ups and downs of the stock market. This fund could also be used as part of a more cautious investment portfolio, or bring some stability to a more adventurous portfolio.

    Over the long term the fund aims for moderate growth, while offering some shelter against the worst stock market falls. That doesn’t mean it won’t lose money though, as unlike cash all investments rise and fall in value, so investors could lose money.

    The fund invests in a mixture of investment types that can be broadly split into two categories. This includes long-term growth investments, like global company shares and bonds including higher-risk emerging markets and high-yield bonds. The fund can also use derivatives, which can add risk.

    BNY Mellon Real Return also holds investments that aim to add stability to returns, like gold, government bonds and cash. The team are focused more on not losing money rather than making it, so we don’t expect the fund to race ahead in rising markets.

    More about this fund, including charges and how to deal

    BNY Mellon Real Return Key Investor Information

    Important notes

    This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

    Learn more about investing

    Category: LEARN ABOUT INVESTING

    Should I save or invest?

    Category: Investing essentials

    Diversification: what you need to know

    Category: Investing essentials

    Risk: what you need to know

    Category: Investing essentials

    Investing behaviours: what you need to know