Long-term investors rewarded by compound performance

An investor who puts money aside over the long term for the proverbial rainy day is far more likely to achieve their goals than someone looking to ‘play the market’ in search of a quick profit. If you want to be one of these people who do this but feel you need to seek independent financial advice, then please do not hesitate to contact us.

The longer you invest, the bigger the potential effect of compound performance on the original value of your investment. Many investors will be familiar with the term ‘compounding’ from owning cash savings accounts. The term refers to the process whereby interest on your money is added to the original principal amount and then, in turn, earns interest.

Over time, compounding can make a significant difference. Your investments can benefit from compounding in a similar way if you reinvest any income you receive, although you should remember that the value of stock market investments will fluctuate, causing prices to fall as well as rise, and you may not get back the original amount you invested.

Shares, bonds, property and cash react differently in varying conditions, and opting for more than one asset class can help to ensure your investments won’t all rise or fall in value at the same time. Holding a portfolio of investments as part of a collective investment scheme can help to diversify the perils associated with investing in individual assets and markets, as well as less visible hazards such as inflation risk – the possibility that the value of assets will be adversely affected by an increase in the rate of inflation.

Investing in vehicles such as unit trusts, investment trusts and OEICs can also remove a lot of the difficulty associated with managing a broad portfolio. Above all, investors should aim for a level of risk they are comfortable with which reflects their investment objectives.