HOW TO INVEST IN 2020

Investment & Wealth Advice




THIS NEW YEAR’S RESOLUTION COULD MAKE A REAL DIFFERENCE TO YOUR PORTFOLIO

“Make ‘buy and hold’ your strategy this year to improve your investment returns in 2020” says Ollie Barnett, Senior Private Banker.

If you’re starting the New Year with some resolutions, there is one that could make a real difference to your finances – stop doing so much. Investing is one area where over-activity doesn’t pay off. For most long-term investors, making a conscious decision to adopt a “buy and hold” strategy, with minimal activity, and a healthy lack of interest in the day-to-day movements of your portfolio, will give you the best chance of improving your investment returns. 

"Buy and hold" means choosing your investments carefully and holding them for the long run. Other than checking in regularly (once a quarter at the very most) to make sure that your performance is on track, you shouldn’t try to second-guess the market. Diversification is also key to success - putting all of your money into a single stock or asset class would be highly risky regardless of whether you buy and hold or trade in and out.

Once invested, stay invested, even when the market goes down

This advice might sound odd as anyone investing today will have lived through at least two massive crashes in the stock market (the bursting of the tech bubble in 2000, and the global financial crisis of 2008), not to mention various booms and busts in assets ranging from property to emerging markets to gold. It’s clear to many investors that markets can suffer from massive losses, and most of us would rather avoid that. 

So why stick with ‘buy and hold’? There are two simple reasons to do so

Firstly, none of us can predict the future. While we’d all love to avoid the dips and troughs, timing the market successfully and consistently – getting out at the top moment, and then getting back in at the bottom – is impossible. 

For example, with hindsight, the long bull market in equities that we’ve enjoyed since 2009 may seem inevitable. After all, at the bottom of the market, stocks were cheap and central banks have continually stepped in to make sure that investors feel confident of their support. 

At countless points in the last decade – the eurozone crisis of the early 2010s, the scare over China’s slowdown in 2015, the market slump at the end of 2018 – an attentive investor could have found plenty of excuses to sell everything and sit in cash. And after the initial sense of relief, they’d have been left watching miserably as the market marched ever higher.

It’s “time in the market” that matters, not “timing the market”

This leads onto the second point - churning your portfolio (trading too often) is expensive. There are few things that we can control as investors – given the impossibility of predicting the future – but one of them is our cost of investing. Every time you buy or sell, your costs stack up. And the higher your costs, the higher your returns need to be.

There are a few strategies you can adopt to prevent your bad habits from taking over. 

One is “pound-cost averaging”. This simply means saving regularly. If you drip feed your money into the market on a monthly or quarterly basis, say, it means that when markets are falling, you get more assets for your money, while when markets are rising, you don’t feel panicked about missing out. It’s practical – most people are in a position to save regularly, rather than depositing lump sums – and it’s a helpful psychological defence technique against your own worst instincts.  

The other is “rebalancing". There are many ways to rebalance, but the key point is to allocate a certain percentage of your portfolio to each asset class that you invest in. If you look at your portfolio and find that over the course of the year, your asset allocation has drifted out of line with your target, then you top up the underweight element of your portfolio. This way, you’ll always be investing in assets that are out-of-favour, while avoiding becoming over-exposed to booming markets.

Is it time for an independent investment review?

At Weatherbys Private bank, we offer investment advice.  When clients come to us looking to invest, we will occasionally recommend an active investment manager.  What we will always do is recommend to our client that they choose the solution which will keep costs down.  

For this reason, many clients find that a portfolio of tracker funds is the right option.  We help them create the right balance of tracker funds in their portfolio and then ensure that it doesn’t drift over time. And, true to the low cost philosophy, we don’t charge a penny for this service.

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Important information

The information contained in this article does not constitute financial advice or a personal recommendation.  Past performance is not a guide to future performance. The value of an investment and its income can both increase and decrease and you may not get back the full amount originally invested. The value of overseas investments will be influenced by the rate of exchange.