Opting for a “boring” investment strategy could be the route to returns that allow you to make exciting lifestyle decisions in the future. If you’re looking for excitement in your investments, read on to find out why that approach could lead to disappointments.
The media can make investing seem exciting
When you’re reading financial headlines, they might say things like “stock market soars in best day ever” or “the best companies to invest in right now”. In other media, investing is often dramatic too. For example, in The Wolf of Wall Street, the main character, Jordan Belfort, is shown making a huge fortune through investing and fraud.
Yet, despite the perceived excitement of investing, acting on emotions, even ones that feel positive, could harm your decisions. The excitement of finding a tip that declares a company will be the “next Apple” could lead to you skipping further research, like assessing the risk profile of the firm and whether it fits into your existing portfolio.
Investors might even feel excited about the risks they’re taking – the anticipation of waiting to see if they were “right” can be addictive. So, some investors may take more risk than is appropriate because it adds to the excitement.
As a result, viewing investing as something that should be exciting has the potential to affect the long-term performance and could mean you’re at greater risk of losing your money.
So, what’s the solution? For many, it’s taking a boring approach to investing.
Why boring investments work
First, what does a “boring” approach to investing mean?
Focusing on your long-term goals and building an investment strategy around this and other factors, such as what an appropriate level of risk is and other assets you might hold. You’d try to remove emotions from your investment decisions and, instead, use logic.
If you’ve heard the mantra “buy low, sell high”, this approach might seem like it wouldn’t work. Yet, historically, investing with a long-term outlook, rather than responding to short-term market movements, is a strategy that’s worked for many investors.
March 2023 data from Schroders highlights the challenges of trying to time the market.
If you’d invested £1,000 at the start of 1988 in an index of the largest 100 UK companies and left the investment alone, it would have been worth £15,104 in June 2022 – an annual return of 8.31% on average.
However, if you tried to time the market and missed just the 10 best days, your average annual return would fall to 6.1% and you’d have £7,503 in June 2022, less than half of the amount had you remained invested.
While trying to buy low and sell high might be exciting, even just a few mistakes could mean you miss out on long-term returns.
Of course, it’s important to note that investment returns cannot be guaranteed, and past performance isn’t a reliable indicator of future performance. Yet, it can provide a useful insight into why taking a long-term view when making investment decisions could be beneficial.
Boring investing could lead to exciting lifestyle opportunities
A boring approach to investing doesn’t have to mean the outcomes are dull. In fact, taking a long-term approach could mean you have more opportunities to create the lifestyle you want.
A long-term investment strategy might allow you to tick items off your bucket list like:
- Retiring earlier to travel the world
- Sampling dishes at award-winning restaurants
- Creating a disposable income to attend gigs or the theatre
- Purchasing a holiday home to spend time with your family.
Rather than looking for excitement when investing, finding it in your long-term plans and what investment returns may allow you to do could be far more rewarding.
Contact us to talk about your investments
If you’d like to talk about your current investments, or you have a sum you’d like to invest, please get in touch. We’ll work with you to create a long-term investment strategy that’s aligned with your goals and financial circumstances.
Please note: This blog is for general information only and does not constitute financial advice, which should be based on your individual circumstances. The information is aimed at retail clients only.
The value of your investments (and any income from them) can go down as well as up, and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.