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The Importance of a Long-Term Investment Perspective
As a member of a super fund or an investor, you may have seen some significant events in the past few years that have disrupted global markets, such as COVID-19, decade high inflation and interest rate rises. These events can make you feel uncertain about your investments and financial position. While it is understandable to feel this way, it is crucial to maintain a long-term investment perspective to make smart financial decisions and achieve investment success.
The Importance of a Long-Term Perspective
During times of uncertainty and market volatility, it is essential to remain rational and employ a long-term investment perspective. Investing is a marathon, not a sprint, and it is normal for markets to experience short-term volatility. Riding out the bumps in the market is part of the investment journey, and bear markets (falls of more than 20%) usually last significantly less time than subsequent rising markets. Taking a myopic, short-term view when markets are volatile can lead to rash decision-making, which is an investor’s greatest threat! This behaviour usually leads to missing out on returns when the market rebounds as it’s impossible to time the market and most people wait until the market has recovered before getting back in, missing out on the crucial recovery in prices.
Tailoring Investments to Your Risk Profile
Your investment strategy should be tailored to your risk profile, which is determined by factors such as your investment objectives, tolerance and capacity for risk, stage of life, the economic situation and more. When developing an investment strategy all of these factors should be taken into consideration to determine which investment strategy is appropriate for you.
A financial plan can be designed to help you achieve your financial and lifestyle objectives however as with any plan, this should be regularly reviewed and updated. Often in live there can be significant events that can throw you off course or changes to legislation or new opportunities that may arise that should be considered. Reviewing your plan with a financial adviser will help to ensure you continue to make sure and steady progress to achieving your goals.
Compounding Returns – The Long Game
Even looking back over just the past few years, the importance of maintaining a long-term investment perspective is evident. The rapid spread of COVID in 2020 caused investors to panic, resulting in sharp market falls of more than 30%. Despite this significant drop, markets rebounded in a dramatically short period. It is for this reason that looking at investment returns over a longer period is important, and it is where you see the real trends. According to Vanguard, “a $10,000 investment made into Australian shares in 1991 would have achieved a 9.7 per cent total return per annum if all distributions had been reinvested and grown to $160,498 by 30 June 2021”. It’s important to note that the 30 year period in question includes the 2007-08 Global Financial Crisis, 9/11 terror attacks, the dot com market crash and the COVID market crash, indicating that even when major economic shifts happen, a long-term investment perspective will help you achieve your investment objectives..
Your Investments, Your Future
Now for your own unique situation. You might be building your career and starting a family. Perhaps you’re approaching retirement age and looking to secure your legacy. Whether you’re at either end of that scale, or somewhere in between, having a solid, ongoing advice relationship with a financial adviser is a smart call. The Wealth team at McKinley Plowman work alongside clients at all stages of life to help them make smart investments as part of their financial plan – and we’re ready to help you do that too. You can reach out to us on 08 9301 2200, or contact us via our website.
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