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Keeping Your Investment Strategy in Check

By 18th October 2017Blog
Alex Shaw, Progeny Wealth

Alex Shaw, Progeny Wealth

This post was originally published on Progeny Group’s website. Read the original version here.

We’re taught from an early age that giving in to temptation can lead to unintended consequences. There are plenty of examples out there. We know that curiosity killed the cat, there were grave repercussions for Adam and Eve from feasting on the forbidden fruit in the Garden of Eden, and Oscar Wilde famously said that he could resist everything except temptation. There’s one particular temptation I’d like to discuss in this post – and that’s the temptation to check your investments every day.

Nowadays, it’s very easy for us as investors to access our portfolios. The introduction of online platforms and investment apps means that we can keep tabs on our portfolios whenever and on whichever device we want. This development has been good for increasing transparency and allowing us to access information at the swipe of a screen, but it might not be the best way to maximise our investments over the long term.

Warren Buffett’s advice to investors is “don’t watch the market closely”. His view is that when investors are “trying to buy and sell stocks, and worry when they go down a little bit – and think they should maybe sell them when they go up – they’re not going to have very good results”.

These are wise words. For the average investor, not only can checking their investments every day be terrible for their blood pressure, it can increase the desire to tinker with the portfolio, and tinkering can have a detrimental effect on returns.

You might be the type of investor who enjoys keeping an eye on the markets every day. There’s nothing wrong with this approach, as long as with every new piece of information you don’t feel the need to work out the implications for your own investments. Information is everywhere; it comes at us from every direction every minute of every day, whether we seek it out or not. The availability of too much market information can be damaging and debilitating if we feel like we should be acting on each and every new development.

Don’t Flinch at Fluctuations

Not for nothing are all investors reminded before every transaction that investments can go down as well as up. A client once said to me “I know things can go down as well as up, but I hoped they would have gone up first”. It can be a natural response to get upset when we see a few downward days. With a diversified portfolio, the value of investments will fluctuate frequently – on a weekly, daily and hourly basis – and always has done. A look at the FTSE All-Share index over the last five years (1st October 2012 to 29th Sept 2017) helps illustrate the point. It has finished ‘up’ on 52.97% of the trading days and ‘down’ 47.03% of the time1, so it can be pot luck on the day whether you get good or bad news. Reading too much into the daily market ups and downs can result in an emotional rollercoaster for the anxious investor, one that often has little to do with the long-term health of their investments.

The advent of instruments that enable people to short-sell or to bet against markets or indices have also had an effect on the general understanding of what investing entails. They have created the slightly perverse situation where investors can make as much money when markets are falling as they can when they are rising. If we take short-selling as an example, this is when an investor ‘borrows’ an asset in the expectation that its value will drop. They sell it at the current market price and when the price declines they buy it back, before ‘returning’ it to the lender. The difference between the price it is sold at and the price it is bought back for is the gross profit or loss. The increase in popularity and availability of this style of investing has introduced a different dynamic and a new mindset for private investors. It encourages frequent checking of investments and entering and exiting the market quickly; a smash and grab raid carried out over – in investing terms – a very short time-frame.

It’s fair to say that the increased availability of huge amounts of information plus the vast range of instruments available for private investors to bet against the markets can foster an impatience and short-termism that can produce less than optimal results.

In it for the Long Term

So, what is a healthy amount when it comes to checking your portfolio? As an adviser, I’d love to put an investment strategy in place where I agree with a client that they don’t check it at all – they have no access to it for, say, five years, before I give them the grand reveal as to how much return they’ve made. Obviously, I know this isn’t practical and, while there’s no right or wrong amount, as long as you keep a healthy attitude to daily developments, I can’t emphasise enough that obsessive checking doesn’t usually lead to the best results.

It’s my job to remind clients that we’re in this for the long term. At Progeny Wealth, we recommend investments with a minimum 5-year time horizon, to allow portfolios the chance to ride out any fluctuations in markets. Checking your portfolio every day, every week, or even every month is clearly far too frequent over this timescale. Over longer investment cycles of ten or twenty years, knee-jerk reactions to daily developments can seem even more inappropriate.

Investment is a long-term process and portfolios are structured to take account of short-term fluctuations. The most effective and reliable way to see growth is by being patient, sticking with your plan and staying invested. As the old adage goes, it’s ‘time in the market rather than timing the market’ that brings returns.

If you’d like some help in structuring your investment portfolio for the long term, please get in touch.

Please remember that the value of investments and income from them may go down as well as up and you may not get back the amount originally invested.

This article does not constitute financial advice. Individuals must not rely on this information to make a financial or investment decision. Before making any decision, we recommend you consult your financial planner to take into account your particular investment objectives, financial situation and individual needs.

1 Price history of FTSE All-Share index for period 1st October 2012 to 29th Sept 2017 downloaded from: https://uk.investing.com/indices/ftse-all-share-historical-data

Progeny Group

About Progeny Group

Progeny Group provides a unique combination of wealth management and legal advice for private clients, corporates and family offices. Quadrant Group joined Progeny Group in March 2017.

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