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Parents: Have that peaceful summer holiday without worrying about your finances

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 younger kids play in the water and the teenagers stay glued to their phones.  

The thing is, you’ve been making a conscious effort to get your money working harder for you to reach your financial goals, and you don’t want to ruin months of hard work by switching off.

You don’t have any expensive debt, you’ve got three months of outgoings in your easily accessible savings account, and you’ve started investing the rest to watch it grow for those longer-term goals.

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’. But the warmer months have had more activity over the last few years, as geopolitical noise reverberates onto the financial markets.

Still, the last thing you want is to have to nervously monitor your portfolio’s performance poolside – this is the time of the year to put your family first and make those memories that you’ll talk of for years to come.

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 allows investors to ride out short-term fluctuations 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.

For example, imagine you were invested in an ETF tracking the FTSE 100, an index of the 100 largest companies in the UK by market capitalisation, at the beginning of 2018. The year started well, but the index fell nearly 10% in two months.

Market noise was deafening as investors and analysts tried to predict whether we were on the precipice of financial collapse. It can be hard to ignore this chatter and focus on the long-term instead, and many investors would have sold-up, accepting a small loss because they heard it was going to get ugly on the news.

Yet, just two months later, the FTSE 100 had recovered to a new all-time high of 7877. Those investors who had carried on as normal had unexpectedly seen their money grow over the year, potentially maximising their returns through pound cost averaging if they kept up their monthly payments throughout this volatility – more on that in a moment.

This example of short-term fluctuations just highlights how important a long-term view is for putting your money in the best position to grow.

Regular investing through the summer

By investing regularly, investors smooth out fluctuations in an assets purchase price over time, negating the need to time the market.  During turbulence, this can lower the amount you actually pay for an investment, meaning there’s a lower threshold to be profitable.

At Moneyfarm, we’ve got three regular investment plans to help you make the most of your ISA allowance and maximise your pension savings for your retirement income.

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

Building a diversified portfolio yourself takes time, skill and money. You need to understand your financial background, personality, investment goals, risk appetite and time horizon, and translate this ‘investor profile’ into the right mix of investments to help you reach your goals.

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’ll need to have the technical knowledge of financial markets to value investments and identify economic trends, and the time the monitor these daily.

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.

Investment advice at the touch of a button

Some people like investing themselves, but too often, people who are too busy juggling the competing priorities in their lives aren’t able to do their financial goals justice.

Too few Independent Financial Advisers are able to provide cost-effective advice to the large number of people who need it. This advice gap can encourage many investors to make the wrong decisions with their money, or stay out of the markets completely.

Cost-effective investment advice is now available at the touch of a button and at a fraction of the price. Thanks to more personalised advances in tech, you now have access to suitable portfolios that are built and managed to help you reach your goals, leaving you to focus on the important things in life.

So, what should you do when on holiday this summer? 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 busy holding the financial fort on your behalf.

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