Despite the pandemic last year, 2020 turned out to be a profitable time to invest. Many of our future-building portfolios generated significant annual returns – with gains as high as 140% in some of our best performing funds.
However, recent months have been more challenging, especially since the beginning of September. You’ve probably heard about how global supply chain issues are affecting everyone – from household energy prices rising to the UK’s shortage of lorry drivers.
Rising energy prices have negatively affected investment markets around the world. Naturally, only investors in oil and gas have benefited from this trend – while all other industries have seen share prices drop.
It’s important to remember that being invested in the market is rarely a smooth ride. There are plenty of ups and downs and it isn’t unusual for periods of strong performance to be followed by periods of negative growth or stagnation.
In fact, the ups and downs of the market are precisely why long-term investors get rewarded for returns that are better than leaving cash in a low interest bank account.
In an ideal world, you'd be able to time your investments perfectly to buy at the lowest points of the market and sell at the highest. However, decades of research have shown that almost no one can do this consistently. In fact, many investors do the opposite. Fear leads them to sell when the market falls, and FOMO makes them buy when the marketing is rising. Usually they act too late though which means they end up buying high and selling low – the opposite of the old adage of buying low and selling high!
Instead of falling victim to these cycles, here’s what you can do: (1) maintain perspective, (2) stay disciplined, and (3) regularly assess your personal situation:
1. Maintain perspective
For seasoned investors, short-term movements are usually seen as “market noise”. But if you’re just starting out, it can be tricky (and even scary) to see your portfolio move down. For example, a new investor who put money into the top ~150 most sustainable companies in the world might be forgiven for thinking that the chart below is a sign of trouble.
But if you take the longer view, you can see that the above movements are actually far less dramatic.
2. Stay disciplined
It’s virtually impossible to time investments perfectly. If anyone could do this consistently, they’d probably be trillionaires by now. Instead, long-term investors take a broader view and diversify not just across companies and sectors, but also across time.
To do this, you can set an affordable amount you can invest regularly, so that when the market falls you get more of a bargain, and when it rises you buy less shares as things become more expensive. This concept is known as pound (or dollar) cost averaging and it can help you average out the ups and downs of the market. Our monthly top-up tool can help you do this on autopilot.
3. Reassess your personal situation
At CIRCA5000 we chose investment themes that are based on trends that we believe will generate substantial growth rates over the long term – while securing a better future for our planet and its people. In 2020 these themes generated impressive returns.
However, as a long-term business we also expect some months of stagnation or negative growth in some cases. This is normal in the world of investing.
Just remember as you start your investing journey, it’s good practice to only invest money you’re unlikely to need in the short term. And should your personal circumstances change, always be ready to adapt as you see fit.
This article is for information only and does not constitute financial advice. If you require financial advice please approach an independent financial advisor authorised by the FCA. CIRCA5000 does not provide financial advice and is an execution only platform.