With technological advancement comes new ways for people to manage their money. We’re all in favour of people taking an active interest in their finances. Part of our ethos is providing financial education so people can do just that. However, we also feel it’s our duty to just share a few gentle words of warning…
How online access is affecting investors
In the past, our investors would have relied on periodic updates from us to know how their money was getting along. Now, there are a growing number of platforms, like Elevate and Old Mutual Wealth, that enable investors to check how their investment is doing online. Investors can log in every day if they want to. And many do.
In some ways, this is a great feature. Our investors feel satisfied that they have “full disclosure”. They trust that we’re not trying to blind them with science. We never were, I hasten to add. It’s just that now, they can see their investment in action with their own eyes.
But there is a big problem with this too: investors failing to take a long-term view.
The problem with short-term investing
With daily access to your investment, seeing it take a dive can be enough to give you heart palpitations. Many amateur investors can’t help but panic a little at the first sign of a dip in their return. Their instinct is to bail out in a state of panic, removing their investment before “things get any worse”.
But investments do go up AND down. It’s the nature of the beast. It’s just that before online access, you may not have noticed it happening. The key is to take a long-term view. And that is exactly what we do.
Take a look at this graph as an example:
Overall, annual returns are positive for 22 of the past 31 years. That’s pretty good. But imagine you were watching this in action. Take 2009 for example. Based on a £100,000 investment, you can see a red dot that shows a loss of £23,000. Panic! BUT the overall calendar year return is positive £25,000. Hooray!
If you could watch this on an online investing platform, there may have been a point in the year when you were tempted to cut your losses. But then you would have missed out on a marvellous end of year return.
This new phenomenon has, at times, meant our role is very much one of providing a reassuring port in the storm. We have found ourselves on a number of occasions explaining the importance of taking a long-term view to twitchy investors who are watching the numbers on a daily basis.
Our top tip for becoming an investing pro
By all means, check your investment online every day if you really want to. But there’s no need. Investing should be viewed as a long-term activity. You can trust us to have our eyes on that long-term gain on your behalf. We look at the tides, not the waves, and advise you to do the same.
The value of investments and income from them may go down. You may not get back the original amount invested. Some funds will carry greater risks in return for higher potential rewards. Investment in emerging market funds can involve greater risk than is customarily associated with funds that invest in developed, more established markets. Above average price movements can be expected and the value of these funds may change suddenly.