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To start 2022, we have seen countless articles, news stories, and overheard conversations about inflation, interest rates, and movements in the stock market. This week I’ll look to reiterate why it’s always important to keep an eye on the long term rather than the headlines.
At the time of writing, since January 1, 2022, the ASX 200 is down 3.3%, however, what is often not discussed is the long-term performance and in the past 12 months, the ASX 200 is up around 6.6%. Given all the noise in the media at the moment, I thought now would be an important time to reiterate why we, at Hewison Private Wealth, invest for the long term.
When designing bespoke strategies and constructing portfolios, we always consider clients’ goals and objectives and stress that when investing in growth assets such as property or shares, you should have a minimum investment timeframe of 5-7 years. If we’re only planning on investing in the short-term, chances are we will need to keep a far closer eye on the upward and downward trends of the market than if you were in it for the long haul.
The sharemarket can be a volatile thing, sometimes the price of shares goes up, and other times they plummet. The only way to counter these price movements and volatility is by sticking with your investments over the long term and not pulling them out or worrying about them the moment they lose value. History shows us that the market always bounces back, but it doesn’t necessarily do that within one or two years, this is why investing short-term carries risk. As Glenn Fairbairn said in a recent blog:
In the short term, so long as you do not need to sell, the movement of the market is largely irrelevant and is just one of the conditions of being an investor. As much as a market crash is inevitable, so too is a recovery, and history has proven that over the long term the markets always go up.
Diversification is another key component to investing the way that we do. If we invest solely in one company or asset class and then the value of that industry or company plummets, then we’re not going to be in a very financially prosperous position.
By having shares in multiple companies and investments in multiple asset classes, our risk reduces dramatically, so pairing this strategy with long-term intention is how we can safeguard our clients’ portfolios from losses.
Our Advice team is repeatedly asked what the market will do in the future. The truth is that nobody can predict sharemarket movements over shorter time frames. We would never make a prediction on what the market will do in the next 12 months and you should not be investing in shares if you have the goal of buying a house in a couple of years, or if you need funds handy because you’re about to buy a car outright or need to finance a wedding.
Instead, we always stress that you need to invest with a long-term focus and not get swept up in the day-to-day movements of the sharemarket. As we are all aware, there is a constant news cycle that can be distracting, confusing, and at times alarming, but as long as you are investing in a good quality asset, backed by good research, you should find yourself in a good position in the long term. There will always be volatility in the market, but it is important to stick to your long-term investment strategy.
If you’re a client of Hewison Private Wealth, then you can rest easy knowing that your portfolio has been designed to meet your goals and objectives. We continue to review the suitability of your asset allocation over time to make sure it adapts to any changes in your circumstances, in both poor performing and good performing markets. We are not concerned with short-term market movements and we stress that neither should you be. We also understand that is sometimes easier said than done.
Hewison Private Wealth is a Melbourne based independent financial planning firm. Our financial advisers are highly qualified wealth managers and specialise in self managed super funds (SMSF), financial planning, retirement planning advice and investment portfolio management. If you would like to speak to a financial adviser on how you can secure your financial future please contact us 03 8548 4800, email firstname.lastname@example.org or visit www.hewison.com.auPlease note: The advice provided above is general information only and individuals should seek specialised advice from a qualified financial advisor. The views in this blog are those of the individual and may not represent the general opinion of the firm. Please contact Hewison Private Wealth for more information.