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Investment performance: Keeping calm & carrying on

Are you worried about your investment’s performance? Well, sometimes headline figures can be misleading and cause unnecessary panic. I’m going to explain why it is worth taking a minute and looking at the bigger picture.

First, imagine you meet with an old friend for a coffee and you start discussing your investments as you’ve both been invested in a FTSE 100 tracker fund for the past 12 months. You’ve lost 8% over the year but your friend has somehow managed to remain relatively flat! You spit out your latte. How did this happen?

Below you will see two graphs, both representing 12-month periods of FTSE 100 performance; however,  Chart One tracks the performance from 01/12/2017-30/11/2018 finishing -0.32% and Chart Two commences 6 weeks later on 12/01/2018 and ends on -8.10%. Even though there is a small margin of time between each tracker’s start date, the difference in the return of the same investment is significant.

 Graph 1


Graph 2


Why is this? An inescapable fact is that all investments fall, as well as rise, so the FTSE 100 is constantly going up and down for any number of reasons; but in this case the biggest factor was time. Whilst this is a very basic example - in real life you probably wouldn’t have all your money sitting in a tracker- if you are going to compare performance over coffee, it’s crucial that this is like-for-like; this means looking at investments of the same type over the exact same time periods.

Each case is different, but I will always explain to clients that they need to keep in mind what their ultimate financial goals are; making inaccurate comparisons in investment performance in the short term can negatively impact financial planning decisions now and in the future, so try and avoid jumping to conclusions.

On average, markets fall 10% at some point every year, so volatility is the one certainty when investing. At Equilibrium we have diversified portfolios to mitigate some of the volatility experienced in a single market or instrument, but despite this, a return may not always be positive – this is why  conviction is so important. It’s a cliché expression but it has merit; investing is a marathon, not a sprint this is true of financial plans too.

It’s all well and good chasing returns, but what are you doing it for? Here at Equilibrium, we take a holistic approach to financial planning and investment returns are only one aspect of this. When markets are down, we keep an eye on the long term and are always monitoring how our clients’ overall objectives can be met. For instance, building up sufficient cash reserves for short-term expenditure or objectives, so you don’t need to access investments when markets are down to carry on a desired lifestyle. 

If managed properly, the short-term volatility shouldn’t inhibit your long-term financial plan. However, if you’re worried about how your portfolio is performing, or would simply like to find out more about how we create financial plans, we’re always available to talk at Equilibrium. To start the conversation today, get in touch with us at 0161 486 2250 or askus@eqllp.co.uk

Disclaimer: The information provided through the Equilibrium website is based on our opinion and is for general information purposes only. It is not, and should not, be construed as financial or investment advice. The value of your investments can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested