Principles for long term investment

History has shown that the longer the period that money is invested, the greater the chances of a positive outcome. Staying fully invested through a market cycle has, in the past, ensured investors reap greater rewards over the long-term as rebounds after large losses are often significant. If your clients are concerned about recent market falls, it is a good idea to take some time with them to discuss their current investment strategy, rather than making a sudden decision.

Throughout your clients investment journey the markets will experience highs and lows in response to social, political and economic events. Timing the markets involves trying to anticipate when these highs and lows will occur, with investors hoping to buy when prices have reached the bottom and sell when they have peaked. Unfortunately, it’s very hard to predict when to buy back in and getting it wrong means your clients could end up locking in losses and missing out on future gains.

Periods of extreme market volatility, such as what we are experiencing now, can heighten feelings of concern in relation to investments, but staying the course and following the five key investment principles outlined below may help your clients to increase their chances of a positive outcome.

1. Stay disciplined

Although it may be uncomfortable at times, staying the course and sticking to a strategic financial plan could better serve your clients in achieving their long-term financial goals.

• By missing just the best 10 days in the market from 2003 to 2017, your client’s investment returns would have been 48% lower.
• Half of the top 10% of days for market gains in the last 20 years have happened in Bear Markets – so switching funds after they fall could lead to your clients missing these upswings.

2. Volatility is part of investing

Markets rise and fall daily, weekly, monthly – it is part of the natural cycle of investing. But historically, each significant market downturn has been followed by an eventual upswing.

In the US, Monday March 23rd 2020 saw the third-best one-day gain for equities since 1945 for the S&P 500, after the two-day rebounds that followed the Black Monday Crash of 1987, and the Lehman Brothers bankruptcy in 2008.

• Despite the infamous ‘Black Monday’ of 1987, it was still a positive year for equities.
• Despite the last Bull Market being one of the longest on record, we still saw double digit falls in 8 of the 11 years.
• Since 1980, European equities have finished the year in positive territory on 31 of 40 years, yet in each of those years, the market suffered an average intra-year decline of 15.2%.

3. Keeping money in cash is not the long-term answer

While markets have recovered somewhat from their lows, they are still in a period of significant volatility and further market falls are still possible. However, monetary and fiscal measures have emerged and there are a range of other potential responses available.

• Cash returns remain at record lows.
• Equities tend to recover strongly after large falls.
• Bear Markets tend to be shorter than Bull Markets.

4. Over the long-term, holding money in riskier assets is rewarded

Short-term market movements are often the result of changes in valuation and sentiment – how investors feel about the stock market. This is in contrast to long-term market movements, which are the result of changes to companies’ fundamental worth.

• In any 10 year period the odds of global equities posting positive returns is 96%.
• In any 10 year period multi-asset funds have never made a loss.
• In any 20 year period global equities have never made a loss.

5. Diversify, diversify, diversify

A basic tenet of investing is diversification. Diversification means spreading risk by mixing a range of asset classes within your portfolio. A well-diversified portfolio might include equities, bonds, alternatives, property, and cash and helps smooth the return over the long run. The Prisma Fund Range from Zurich is a multi-asset fund range which invests in a fully diversified range of global asset classes. Zurich Investments employ strategic and tactical asset allocation strategies and strive to deliver outperformance in the same manner and within the same controlled process as we have done for over 30 years.

• While there is no such thing as a 100% risk-free investment, diversification can mitigate the inherent risk of investing, helping your clients to reach their long-term financial goals.
• Multi-asset funds tend to be less volatile than equities.

Your clients’ investment journey is a process rather than a once-off event. As their circumstances change throughout their life you can review the details of their investment strategy and refine as necessary. The greatest asset an investor can have is patience and regular reviews will ensure your clients are on track to achieve their long-term, strategic financial goals.  

The Prisma Range of Multi-Asset Funds is available across the Zurich suite of Pension, Approved Retirement Funds (ARF), Approved Minimum Retirement Funds (AMRF) and Savings and Investment products.

You can download our Principles for long-term investment consumer flyer here. For more information speak to your Zurich Broker Consultant or visit zurichbroker.ie.

Source: All market data is from Zurich, FE Analytics and Bloomberg, April 2020.