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What the Tour de France 2020 can teach us about investing

As a Tour de France like no other gets started, we look at what the most famous cycling race in the world can teach us about investing.

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.

This year’s Tour de France will look different to previous editions.

As with much else in 2020, the race has been forced to adapt in light of the coronavirus pandemic. Reduced crowds, masks and strict testing protocols will reflect the conditions that caused the race to be delayed from its original start date in June.

Teams have also been warned that two positive tests within their camp during the race will see their entire squad withdrawn and sent home. So there’s the possibility that the whole thing could be called off ahead of the traditional Paris finale.

Spectators around the world will be hoping everything goes to plan when the race begins on Saturday. But what can this historic event teach us about investing?

This article isn’t personal advice. If you’re at all unsure, you should ask for advice. Investments rise and fall in value, so you could get back less than you invest.

It’s all about the team

Since the first race in 1903, the Tour de France has been one of the toughest endurance events in the sporting calendar. Over a period of 23 days, each athlete will be pushed to their limits as they cover 3,470km (2,156 miles).

But no single rider can win the race on his own.

This year’s race consists of 21 stages, and there are five competitions in total. While each stage can be won by a different rider, the cyclist who comes out on top in the general classification is crowned as the overall champion.

In order to claim victory, the winner of the general classification will need a strong team behind him. The 176 riders starting the race are divided into 22 teams of eight, with each team supporting their leading rider with what are known as ‘domestiques’. These domestiques – or ‘servant riders’ – work to support the team’s leading racer by setting the pace, moving against rival teams or defending attacks. Each will have their own strengths, which they use for the good of the team.

Variety plays a similarly important role in investing. Think of putting together your portfolio as a bit like picking a Tour de France ‘dream team’. You’ll want different riders to support you at various points in the race. People to support you during a climb through the mountains, as well as on a flat sprint.

By diversifying across a range of asset classes, sectors and regions of the world, you can help to maintain your balance during different market conditions. But remember that like a cycle through the Pyrenees, the value of investments can go down as well as up.

Learn more about diversification, and why we think it makes sense.

The benefits of diversification

Stick to your plan

The different jerseys

  • The yellow jersey – The big prize. Awarded to the winner of the ‘general classification’.
  • The green jersey – Awarded to the rider with the highest points tally. One for all-rounders.
  • The polka-dot jersey – Also known as the King of the Mountains. This goes to the rider with the most points from the mountain sections of the race.
  • The white jersey – Similar to the yellow jersey, but only for riders under 26 in January that year.

One of the quirks of the Tour de France is that you can win the overall race – claiming the famous yellow jersey – without winning any of the 21 individual stages. This is because the general classification is awarded to the rider with the best overall time (after taking bonuses and penalties into account).

So if you’re going for the big prize, it pays to be patient. There’s little point making the fastest start, or breaking with the peloton (the pack), if it doesn’t fit your overall strategy for winning the race.

In fact, most riders in the Tour won’t be serious contenders for the yellow jersey. They could be looking to support their lead rider, or going after one of the alternative prizes. It follows that if you’re aiming to claim the polka-dot jersey (otherwise known as ‘the King of the Mountains’), you’ll want to conserve energy for these parts of the race.

It’s a similar situation with investing. What are your goals? How much risk are you prepared to take along the way? Knowing where you’re going should help to guide how you get there – whether that’s choosing the right account or choosing a fund to invest in.

Once you’ve made your plan, stick to it. While it can pay to be flexible, we think it makes sense to focus on your long-term objectives, ignoring short-term fads and crazes.

Be prepared for pain

No rider starts the Tour de France expecting an easy ride.

Cuts, bruises and crashes are all a part of cycling. The physical and mental strain is likely to be intense. But for the cyclists lucky enough to take part, racing in the Tour is worth it.

We think it’s important to be similarly realistic about investing. There will be ups and downs. Some investments will perform better than others. But the longer you invest for, the higher your chances are of seeing a positive return. In fact, according to Barclays’ equity gilt study 2019, by investing in the stock market for 10 years, you’d have outperformed cash 91% of the time. This won’t necessarily be the case in future though.

Being able to hold your nerve should be seen as a positive trait for both riders and investors. With investing, this can sometimes mean doing nothing at all. Rather than trying to time the market by selling in and out of investments, it can often make more sense to sit tight.

For example, if you’d missed the best ten days in the market since 2000 – that’s 10 out of more than 5,000 trading days – you’d have just over half the return than if you’d stayed invested. Instead of growing to just over £21,000*, a £10,000 investment grew to just under £11,000 when invested in the FTSE All-Share. There’s no guarantee this will happen again and past performance isn’t a guide to the future.

Missing the 10 best days in the UK market since 2000

Past performance isn’t a guide to the future. Source: *Lipper IM to 27/08/2020

If you’re just getting started with investing, learn more about what’s involved by watching our videos.

Begin with the basics

Success doesn’t need to be exciting

The success of Team Sky (now known as Team INEOS) over recent years might have been welcomed by fans of British riders, but it didn’t come without some criticism from spectators. Occasionally labelled as boring, the team’s stubborn tactics are a good example of how success doesn’t always need to be exciting.

Investors can learn from this in at least two ways. Neither the way you invest, nor what you invest in, have to be exciting in order to bring success.

One way to take advantage of a ‘hands-off’ approach to investing is to set up a direct debit, so that you’re investing regularly each month. You’ll still need to keep an eye on your investments, but you won’t have to worry about timing the market or remembering to add spare money. And you can get started from just £25 per month.

You might decide to take a similar approach to picking investments. With funds, for example, you can choose how adventurous you are in your approach, depending on your personal circumstances, your attitude to risk and goals. You might choose a fund which tracks an index, or invest with a manager you hope will outperform over the long term. We’ve highlighted a range of both on our Wealth Shortlist. Just remember that all investments can go down as well as up in value, so you could get back less than you put in.

Guide to investing in funds

By staying focused on your end goal, you should give yourself a better chance of overall success. So be patient. Be stubborn. And don’t be afraid of being boring along the way.

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    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.

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