’Tis the season to stick to your investment strategy

THIS year has been a rough year on the stock markets, sparked by a range of well publicised global events such as the Ukraine-Russia conflict and the European energy crisis. These events, along with persistent high inflation and rising interest rates, make it likely that 2023 will also be challenging. Retail investors who have invested in exchange traded funds (ETFs) or unit trusts should consider allowing themselves a sprinkling of patience this festive season.

Over the past few years, investing has become very accessible, with affordable options and easy-to-use digital platforms allowing everyone to become an investor. Starting is the easy bit! It is when markets fluctuate, and returns take a knock, that staying invested requires investors to keep their nerve.

Here are my top resolutions for retail investors as you head into 2023.

Resolution 1: I shall be realistic about my investment timelines

The world’s greatest investor, Warren Buffett, has a favourite length of time for his investments – forever. He chooses his investments very carefully and then keeps them for life. He coined the phrase “It is time in the market that counts, not timing the market”.

Making consistent and frequent investments into an ETF or unit trust is a far better way for investors to grow wealth than trying to time their entry and exit from the financial markets. In fact, study after study proves that investors who try to buy low and sell high leave more money on the table than those who simply stay invested.

So yes, your investments will fluctuate, but the longer you are invested, the higher your returns are likely to be. Those who invest for the long term will reap the compound interest “dividend”, thanks to all the interest and dividends earned from their investments being reinvested, delivering growth on growth.

Resolution 2: I shall compare my investments to buying a house

Think of investing in an ETF or unit trust like purchasing a house. When you buy a home, you know that you’ve made a good decision and that your property’s value is likely to increase. However, you don’t expect the value of that house to skyrocket overnight. You know it will be several years before you can sell for a substantial profit.

Investing is much the same. You need to think of it as a long-term decision and expect some ups and downs. But if history is anything to go by, over a five- or 10-year period, the returns will come.

Resolution 3: I shall not check my app every day

Many retail investors start their journeys feeling empowered and energised, frequently logging onto their investment app to see if their investments have grown. This is likely to disappoint, because by their very nature, markets do go up and down. If retail investors check too often and “spook” themselves, they may end up selling their investments when they have dipped – and then any losses incurred are permanently locked in. When this happens, it becomes almost impossible to recover.

Log on around once a month or so, to see how things are doing – and just before doing so, remind yourself that you are in this for the long term. If you do have a daily check-in habit, here’s a tip: whenever you want to check your app, read an article on investing instead!

Resolution 4: I shall not put all my eggs in one basket

Enter diversification: the technique of spreading your money across different asset classes and geographies to reduce your risk. Asset classes include shares (also known as stocks or equities), bonds, cash and property. You should consider having your money invested in different asset classes and a variety of markets around the world as they tend to behave differently which should lead to a smoother investment journey. Remember, the higher your allocation to equities, the higher your returns over the long term, but the bumpier the ride is likely to be in the short term.

Resolution 5: I shall read and research and empower myself

When someone asks you what you want for a festive season gift, ask for an investment book! Empowering yourself by understanding the key investment concepts is really the most powerful tool you can give yourself on your investment (and wealth creation) journey.

Here’s to a happy 2023 and sticking to all your investment resolutions!