Five tips to help you invest for the long-term

6 min read 22 Oct 21

Summary: At M&G we are strong believers in long-term investing. We believe taking a longer-term approach, ignoring the day-to-day ups and downs of the markets, can better help you achieve your financial goals. Here are five tips to help you work out if it’s the right approach for you.

Take a look at our glossary for explanations of the investment terms used throughout this article. 

1. Decide on your goals

Before investing it’s important to know your goals, timeframe, and how much risk you’re willing to take. In general, the more risk you’re able to accept, the higher the potential returns could be. However, higher risk investments can also mean higher losses too.

You should ask yourself two other important questions:

  1. How much time do you have to allow your investments to grow?
  2. How much money would you like to have at the end of your investment period?

Once you’ve worked out the answers to these questions, you can decide where to invest your money. Generally speaking, the longer you invest for, the better your returns are likely to be. That’s because, in the short term, markets can go up and down. This is due to factors such as news stories, political events or investors getting itchy feet and chopping and changing their investments.

The value of the fund you invest in will go down as well as up. This will cause the value of your investment to fall as well as rise and you may get back less than you originally invested.

2. Spread your investments

If you keep all your savings in similar investments, you could be putting your money at too much risk or missing out on potential returns. You’re usually better off diversifying – in other words spreading your investments across a range of different asset types, like equities (shares in a company), bonds and property. Having said that, there is still no guarantee of positive returns, or if spreading your investment will eliminate all the risks associated with investing.

Investing in a mixture of assets means you won’t have ‘all your eggs in one basket’. Asset types are likely to perform well at different times and in a variety of market conditions, going up or down and at different rates. So investing in a good mix means your whole investment could be more stable over time with the potential for more consistent returns over the long term as a result.

We believe it’s also important to stay diversified within each type of investment. For example in the stockmarket, this means holding a mix of asset classes, across regions, sizes of companies, and sectors the companies operate in.

3. Avoid trying to time the market

Investing a single lump sum in a particular share or bond can be highly beneficial if you get the timing just right, but this is very difficult to do in practice.

When market conditions are uncertain, it can be difficult to know the best course of action. It may be tempting to sell existing investments, or delay making new investments and wait until markets feel less turbulent and prices are low.

You may be tempted to try ‘market timing’- this is when you move your money in and out of an investment to try and benefit from high performance and avoid low performance. In fact, this is extremely risky since you have to be right not just once, but twice – first when you sell out of the market and then again when you buy back in. Even the most experienced investors find this a challenge.

In times of uncertainty, emotions can easily override sound investment decisions. So it’s best to stay focused on your long-term investment goals, and not be distracted by short-term news, or peaks and troughs in the market. Think of investing as a marathon and not a sprint.

4. Consider investing regularly

Investing at regular intervals can be a good way to help smooth out the ups and downs of the market. As we’ve already mentioned, timing the exact moment to enter or leave the market can be extremely difficult – you run the risk of investing when the market is high and exiting when it is low, losing you money. 

When you invest on a regular basis – whether it’s buying stocks and shares directly or by topping up your investments in a fund – you’re taking part in what’s known as ‘pound-cost averaging’.

This is a practice of investing a fixed amount at regular intervals, maybe each month for example, regardless of the ups and downs of the market. When the investment price goes down, you get more for your money, which can lower the average cost of each unit you’ve invested in. And of course, the lower your cost to invest, the greater your potential rate of return becomes.

5. Keep an eye on your investments

It’s always worth taking a fresh look at your investments at least once a year to make sure they still reflect your original plan, or make sure they are right for any new plans you may have.

Over time, events can cause market changes and your investments may not be performing as expected. When this happens, checking your investments gives you the opportunity to make changes if needed to help to keep your investments in line with your original goals.

Important information

The value and income from any fund's assets will go down as well as up. This will cause the value of your investment to fall as well as rise. There is no guarantee that any fund will achieve its objective and you may get back less than you originally invested. 

Unfortunately, we’re unable to give financial advice. If you are unsure about the suitability of your investment, speak to your financial adviser. The views expressed in this article should not be taken as a recommendation, advice or forecast.

By M&G Investments

The views expressed here should not be taken as a recommendation, advice or forecast.

The value and income from any fund's assets will go down as well as up. This will cause the value of your investment to fall as well as rise. There is no guarantee that any fund will achieve its objective and you may get back less than you originally invested. 

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