Principles for long-term investment

Unfortunately, it’s very hard to predict when to buy back in and getting it wrong means investors could end up locking in losses and missing out on future gains. Periods of extreme market volatility can heighten feelings of concern, 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 2022, investment returns would have been 43% lower.
• 7 of the 10 best days for market gains historically have happened in Bear Markets – so switching funds after they fall could lead to 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 (just after the COVID bear market low) 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 33 of 44 years, yet in each of those years, the market suffered an average intra-year decline of 15.4%.

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

While cash returns have increased in recent years, it has not kept pace with inflation which has increased even more. Whilst inflation is now off its highs, it is likely to stay well above 0% in the years ahead.

• While cash cannot match inflation, investments have the potential to.
• 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 ten year period the odds of equities posting positive returns is 94%.
• In any ten year period multi-asset funds have never made a loss.
• In any twenty year period equities have never made a loss.

5. Diversify, Diversify, Diversify

A basic tenet of investing is diversification. 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 it provides an opportunity to review the details of their investment strategy and refine as necessary. Regular reviews will ensure your clients are on track to achieve their long-term, strategic financial goals.

For more information

For more information on the Zurich range of funds speak to your Zurich Broker Consultant or visit the Fund Centre on zurichbroker.ie. To support conversations with your clients about their long-term financial plan please download the ‘Principles for Long-Term Investment’ consumer flyer.

Source: All market data is from Zurich, FE fundinfo and Bloomberg, January 2024.