The big family summer holiday is fast approaching, and after months of hard saving you can’t wait to switch off by the pool with the Financial Times Summer reading list as the kids jump in and climb out, repeatedly.
The thing is, with interest rates at rock-bottom for 100 months and inflation now running above the Bank of England’s target, you’ve been making a conscious effort to get your money working harder for you.
Summer is also traditionally a quiet time on the markets as everyone puts their ‘out of office’ on and heads for the beach – so the old saying goes; ‘Sell in May and go away, don’t come back till St Leger’s Day’.
The last thing you want is to have to nervously monitor your portfolio’s performance pool-side – this is the time of the year to put your family first.
Holiday-proof your portfolio
If you’re growing your money for your future, you shouldn’t be looking to time the market. If you’re expecting to react to market movements in the time it takes you to top-up your tan, you could be doing more harm to your portfolio than good over the long-term.
Research from asset manager JP Morgan shows how a few poorly-timed trades could seriously impact two decades worth of returns from your investments. If you’d invested in the S&P 500 from 1995-2014, you would have made an annualised return of 9.9%. But take out the ten best days on the market, and this reduces to 6.1%.
A long-term horizon gives investors the nerve to ride out short-term volatility and avoid knee-jerk reactions. You’re probably not going to remember this week’s uncertainty when you’re in retirement, but there are other ways to reduce your risk exposure.
By investing regularly, investors smooth out fluctuations in an assets purchase price over time, negating the need to time the market.
This strategy of regular investing for a long-term horizon sounds simple enough, but you’re going to need a portfolio of investments you can trust to navigate you through periods of uncertainty.
Markets by their very nature rise and fall in response to global events and, if you don’t have a globally diversified portfolio, you’re leaving yourself exposed to any wobbles in the market. If you spread your money across asset classes and regions, you hope to smooth out any negative performance in your portfolio with gains made elsewhere.
Have a range of assets in your portfolio
But building a diversified portfolio yourself takes time, skill and money; you need look at your investor profile and decide the proportion of assets that will make up your portfolio. If you’re happy to take on a bit more risk you might have more equities, whereas a traditionally safer portfolio might include more bonds.
You then need the skill to execute these trades, and the extra capital it costs to trade them yourself.
Exchange traded funds (ETFs) are increasingly popular with investors looking for exposure to diversified investments. ETFs mirror an index and can provide you with exposure to markets that are usually more difficult to access, like cocoa and timber. As they are a form of passive investing and trade on an index, ETFs are low cost.
So, what should you do when on holiday? Stick to your strategy and put your portfolio aside, relax, and remember to apply sun cream. You’re investing to meet your family’s life goals, so don’t forget to enjoy the moments when you do achieve them. And if you use a wealth manager, like Moneyfarm, you can relax in the knowledge that a team of experts are always watching.