Amid the uncertainty of the international political environment, along with the unfolding of a new economic backdrop, it’s easy to lose sight of the positive news in the world. This includes some truly incredible leaps in innovation. The 2010s were the decade that bought us the iPad, facial recognition technology, Airbnb, home 3D Printing and Netflix. Names such as Siri and Uber now form part of our everyday language, yet a decade ago we hadn’t heard of them.
What does this innovation mean for your money?
Innovation is a constant in our society, driven largely by a human desire to solve human problems. In this age of innovation, facing a period of adversity increases society’s motivation for finding solutions to the challenges being faced. The advances made in the renewable energy sector are a great example of this. Simply put, innovation drives markets.
We can look at the MSCI World Index to give us a sense of the impact of innovation in the last decade. This is an index that captures a broad measure of market performance across the world and is made up of stocks from 23 developed countries and 24 emerging markets.
The global financial crisis back in 2008 hit markets hard, but the message from the above graph is clear; with some ups and downs along the way, markets have grown steadily since. If we were to look at the trend over the last century, the constant march of progress on the markets is even more evident.
Whilst many investment managers would have you believe that achieving returns such as these is a complex task that incurs a significant expense, the reality is all you had to do was invest in the market and remain invested. As John Bogle, founder of Vanguard and author of The Little Common Sense Book of Investing said, to guarantee your fair share of stock market returns, you “don’t look for the needle in the haystack. Just buy the haystack!”
This dependable approach can form a key part of an investment strategy designed to be the fuel in your financial plan, ultimately helping you achieve your financial and life objectives. That is where Life Matters comes in.
By understanding the basic drivers to long term market returns, you can close the gap between market returns and the returns you end up with in your pocket. We will explore this concept further in coming editions of The Big PictureTM, but here are three key things to look out for:
1. Think like an investor rather than a gambler.
Successful investors focus on their long-term returns and avoid making knee jerk emotional reactions to the inevitable short-term ups and downs of their investments. Keeping this in mind when selecting your investments means you will be seeking those that have always worked to deliver returns, rather than jumping on the bandwagon of the latest investing trend. This is an important distinction between a successful long-term investor and someone looking to take a gamble.
It is also important to select a portfolio that’s appropriate for the amount of risk you are willing and able to take. Whilst historic performance is no guarantee of the future, it can provide us with some useful data to consider. For example, over the last few decades, how far has the portfolio you’re considering investing in fallen before. During the credit crunch, an investor that was exposed to more risk than they were comfortable with, may easily have panicked and made a knee jerk reaction.
2. Ignore the noise
When we refer to ‘noise’ in this context, we’re talking about Brexit, the US-China trade wars and all the other headline-grabbing news. When it comes to giving market updates, the media attracts viewers and readers by focusing on the short-term impacts of these headlines. They don’t report good news in the same way, so although short-term ups and downs are perfectly normal, the media don’t report the good news when the markets recover.
Short-term uncertainty is a constant when it comes to investing, with any perception of certainty, media driven or otherwise, being an illusion. Our role is to provide reassurance and calm in a world of noise, using our knowledge of the markets to keep you on track toward your financial goals.
3. Let the markets do the work for you
As we can see from the chart above, it’s the time you spend invested in the markets, not timing the markets that has the biggest impact. In other words, unless you have a crystal ball to give you insights that the billions of other investors in the world don’t have, trading in and out of the market rarely works. Being patient is fundamental to your success as an investor.
The decade ahead
The next decade promises even greater innovation; even more leaps into the technological unknown. In 2030 we might be talking about the rise of driverless cars or the death of the commute itself, the world reverting to home Virtual Reality offices. By understanding the markets and the part the real world has to play, this can allow you to harness this progress, helping your financial dreams and aspirations become a reality.
Over the coming months, we will be exploring the key principles behind our investment strategy. Based on Nobel-Prize winning research, our scientific investment approach is proven to deliver successful long- term outcomes.
Get in touch
If you’d like a second opinion on your current investments with no obligation or cost to you, please get in touch. Email firstname.lastname@example.org or call 01202 025481 to find out more.
The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.