The case for keeping a long-term perspective in your finances

There are several reasons that all good advisors will encourage you to keep a long-term perspective on your financial activities. In times of uncertainty and volatility, such as we’ve seen in recent months, this advice proves more essential than ever.

When the first UK lockdown was announced in March 2020, the Dow Jones Industrial Average plunged by 37%, despite starting the year on a record high. Yet by November 2020, the economy had staged an exceptional rebound. As 2021 unfolded, the success of the vaccination programme doubtless contributed to the strength of the economy, and although things have been by no means plain sailing, we can afford at least some cautious optimism – by June 2021, at least 88% of all UK businesses had resumed trading.

Although the global pandemic is far from over, what this snapshot of the past year demonstrates is that the bad times pass. Those who cannot resist the temptation to sell investments and hold cash close when choppy waters are ahead will lose out on the benefits of staying invested. The key is to keep a well-diversified portfolio that spreads risk. By allocating investments in a variety of industries and among a mixture of stocks, fixed income and commodities, you leave room to gain the highest return for the lowest risk. If you invest in assets that react differently to the same event, you give your investments a level of protection to market fluctuation and collapsing industries.

This long-term approach is equally important when considering your own financial goals. When you have a long-term perspective, you can adapt your financial behaviour to achieve these goals. For example, when it comes to pensions, younger people may feel more comfortable taking a higher amount of risk with a view to generate more returns – the converse is likely true for people reaching retirement. Similarly, those with young children might consider putting money aside to help with university fees further down the line.

The same argument can be made when considering seeking financial advice. Despite initial start-up costs, the benefits of speaking with a financial advisor can be reaped far into the future.

As one gpfm client said:

“In July 2014, I started off with £316,274, and have made subsequent withdrawals totalling £84,000. The current value as of June 2021 is £366,861.73, meaning that there has been an overall surplus of £134,588 since inception, even after plan and adviser charges – which in my opinion are entirely justified!”

If you would like to talk to a member of the team here at gpfm about any of the issues raised in this article, please don’t hesitate to get in touch over email or call 01992500261.

This article is for information only and must not be considered as financial advice. We always recommend that you seek independent financial advice before making any financial decisions. Investments can go down as well as up and you may get back less than you invested.

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About gpfm

gpfm are an independent financial planning company dedicated to the provision of personal, professional, and objective-driven advice for our clients. We have been awarded the Chartered Financial Planners title by the Chartered Insurance Institute for offering high quality, independent and informed advice that meets the needs of our clients.