People can sometimes have a hard time reconciling what they see in the media about investing compared with what they hear from us at Equilibrium. A lot of what we read in the investment column inches focuses on what shares we should be buying, holding and selling, and why wouldn’t we take advice from the guru who has his opinion published in a national newspaper?
But these “suggestions” often ignore something very important to an individual investor. Much of what we see on the news, hear in the pub and read in those papers is about short term activity. Buying and selling shares in the short term can be appealing to some, the idea of turning a small sum of money into something larger in this time can be entertaining and even a little exciting; however, the gratification of seeing a quick reward doesn’t take into account the returns an investor needs to achieve their goals. Returns generated in this way can be lost as quickly as they are gained should the market change. At Equilibrium we prefer to look at investing over the long term, creating a robust financial plan and clearly defining goals to help us to map out the time horizon to the investments, allowing us to take on the appropriate amount of risk. We believe excess risk is pointless risk.
No one really knows what the stock market will do tomorrow and trying to second guess it over the short term is very difficult. Clients are often surprised when I suggest to them that over certain periods of time they will see losses in any investment. Interim losses are to be expected, even during the best investment periods. Investors often worry and react with panic in response to market falls, even if they have a diversified portfolio with long term goals.
Some might consider that any time you are putting funds at risk, be that in a well-diversified portfolio or the stock market, then you are placing funds in an environment where the outcome is unknown. For investing, in the short term that can be true, however the likelihood of experiencing losses greatly diminishes the longer funds remain invested.
When we construct an investment portfolio at Equilibrium, we ask clients to look far beyond what the media is talking about today, which can feel counter intuitive to what should be happening. Speculating is about buying an asset and hoping the price will increase in the short term. Investing is about buying an asset and taking a long term view, believing you might see value for money over an extended period of time. Unfortunately this doesn’t make for a very good headline.
The content contained in this blog represents the opinions of the Equilibrium adviser team. The commentary in this blog in no way constitutes a solicitation of investment advice. It should not be relied upon in making investment decisions and is intended solely for the entertainment of the reader.