Helping investors to keep their heads


Posted by: Swindells FP, on May 20, 2013.


It has been quite a year for stock markets. In the past 12 months shares have soared to record highs; higher than the tech boom in 2001, and higher than the credit bubble of 2008.

But let’s not get carried away. Being disciplined with an investment strategy is as important when times are good as when times are bad, but in some ways the excitement of a rising market makes it harder. Here are three things that investors should remember while they are enjoying a rising market – and what we do about each one.

  1. Maintain the right balance of investments.

Every investor should have a carefully considered mix of assets with the appropriate proportions of (and within) cash, bonds, shares, property and so on. But as the value of each asset class rises and falls at different rates, these proportion drift. Maintaining the intended balance is important because your allocation of assets is one of the bedrocks of the strategy that will help you reach your goals. So we rebalance our investment portfolios regularly by trimming the things that have performed well and adding to the things that have lagged. This might seem counter-intuitive, but it helps keep your investment portfolio in the best shape to achieve your long-term goals.

  1. Avoid getting swept along with the market.

When the market is rising it is easy to be tempted to take more risk to increase your returns. The pain and uncertainty of a falling market can quickly be forgotten when shares are on an unbroken year-long rally – as they have been. But sticking to your guns and remembering your original goals and strategy are essential. Chopping and changing your approach when the market shifts can detract from returns rather than enhance them. Our investment philosophy is not influenced by the cyclical nature of the market; it evolves over time as the science of investing evolves.

  1. Guard your gains.

When money is tight, people tend to watch their expenses more closely than when they are feeling flush. In the same way, some investors can neglect to monitor their fees and transaction costs when markets are rising. Letting expenses slip is like trying to fill a bath with the plug out. This is why we keep portfolio expenses low in good and bad markets.

Sometimes the key to successful investing is simply to remain disciplined; to remember to stick to your well-considered decisions; and to keep your head when all around appear to be losing theirs. It’s as important to remember this simple philosophy when markets are rising as it is when they are falling.

 



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