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  • Why long-term investing is simple

    We take a look at why long-term investing is a simple and effective way to 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.

    Learning how to invest is a bit like learning how to drive a car.

    Changing gear, direction and speed all at once, together with running the risk of bumping into another car, might seem terrifying at first. But after a few driving lessons, it becomes second nature.

    It’s a similar story with investing.

    Getting to grips with how the stock market operates, its risks and why it changes direction at different speeds might sound like a tall order. But much like getting behind the wheel of a car, investing is a lot less daunting than you might think.

    In fact, it can be pretty simple when you invest for the long term – that’s at least 5-10 years.

    In this article, we’ll learn about why plain and simple, long-term investing is an easy and effective way to invest. But it isn’t personal advice. If you’re not sure what to do, ask for financial advice.

    Investing is a marathon

    We all invest to achieve the same common goal – we’re aiming to increase our wealth so we can do more with our money. However, we don’t all go about investing in the same way.

    Investors can be broadly split into two main groups – short-term and long-term investors.

    Short termers tend to get itchy feet. They regularly chop and change their investments based on the latest market news or trends, with the aim to profit on short-term changes to share prices. Short-term investing time horizons can range from a few days, up to a few months.

    Whereas long termers ignore the short-term market hustle and bustle and tend not to worry about what happens to share prices today or tomorrow. Instead, long-term investors look further afield – backing companies with the potential to grow over the next 5 - 10 years. We think this is the best approach to take.

    One of the all-time great investors, Benjamin Graham, sums it up quite nicely – “In the short run, the market is a voting machine, but in the long-run it is a weighing machine”.

    What Graham means by this quote is that stock markets in the short-term ebb and flow based on people’s emotion and market sentiment. But over the long-term, the truly great companies show their value.

    Neither approach to investing is necessarily the wrong one – both can achieve the same common goal. But history has shown us that investing is a marathon and slow and steady wins the race.

    The chart shows the 10-year rolling returns for the FTSE 100 index over the last 30 years.

    FTSE 100 index - 10-year total return

    Past performance isn’t a guide to future returns. Source: Lipper IM, 31/12/1990-31/12/2020.

    Name % Growth % Growth % Growth % Growth % Growth
    31/08/2016 To 31/08/2017 31/08/2017 To 31/08/2018 31/08/2018 To 31/08/2019 31/08/2019 To 31/08/2020 31/08/2020 To 31/08/2021
    FTSE 100 14.67 5.03 1.52 -14.32 23.63

    Past performance isn’t a guide to future returns. Source: Refinitiv, 31/08/2021.

    Before any charges or taxes, the investors that played the long game (10 years in this case) were rewarded with profits in all the periods since 1990 – with an average return of 95% with dividends reinvested.

    Although it’s difficult to measure the success of short-term investors (as their time horizons vary), is there really a case to be anything but a long-term investor?

    Of course, investing in the stock market doesn’t come with any guarantees and past performance isn’t a guide to future returns. But we can definitely learn some lessons from the past. The valuable lesson here is that thinking long term gives you the better shot at investing success. All investments fall as well as rise in value, so you could get back less than you invest.

    Invest little and often

    Now that we’ve covered how long you should invest for, you might be asking how often should I invest?

    We think investing little and often is a great tactic for lots of types of investors. Not only is this an affordable route into building an investment portfolio, but it can help to reduce volatility risk – where investments change sharply in value.

    Investing little and often, or pound-cost averaging for its technical term, can help smooth out market fluctuations and ‘average-out’ the price paid for your investments.

    This means the share or unit price going up and down can actually benefit you, as you naturally purchase fewer shares or units when prices are high and more shares or units when prices are low. In theory, this should help even out the average cost you pay.

    It’s worth pointing out though, stock markets don’t always harmonize with theories. This approach could work against you if prices rise and never look back – investors could be better served by investing a lump sum in this scenario.

    But we know markets move up and down in the near term. The law of averages would suggest investing monthly should even things out over time.

    If you can, adding to your investments on a regular basis is a healthy habit and encourages good discipline. Committing to saving and investing each month helps take the emotion out of your investment decisions too, and you won’t be tempted to try and time the market.

    With HL, it’s possible to start investing by Direct Debit into FTSE-350 shares, funds and certain investment trusts and ETFs from as little as £25 a month. You can also benefit from lower dealing fees. It costs £1.50 per trade with Direct Debit, compared to £5.95 - £11.95 online. Dealing in funds is free.

    More on investing by Direct Debit

    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 their 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.

    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


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