30 Nov Investment Journey
Whether you are starting to invest for your long-term future, are a seasoned investor or are starting to live off your savings and investments, there are certain ‘disruptions’ you are going to face. In fact, I sometimes think that long-term investing is like a train journey with our excellently efficient UK train operators!
The mostly likely way to have a successful investment experience is to decide on your long-term objectives (a final destination and any stops along the way) and to base your overall investment asset allocation, which impacts on your investment portfolio’s risk, on your risk profile.
Your risk profile is assessed using your emotional tolerance to investment risk (how much extra time you want to allocate to your journey in case of delay), your ability to cope with investment risk (do you have alternative transport arrangements if needed, or can you get off the train for a short time if you feel unwell) and your need to take on risk (do you need to take a fast or slow train).
Unfortunately, just like a train journey, long-term investing is not always a smooth ride and even when it is, the next problem could be just a little further along the tracks.
However, you are still planning on getting to the final destination, so you also need to be thinking about the long term when making investment choices and decisions.
Just like the inevitable train delays, there will be times when investment returns are disappointing, and this may happen over a prolonged length of time. This could mean that you do not move forwards and in fact go backwards or get ‘diverted’.
On some journeys you may have to change trains, and the same is true of investing. You may have to change your tax wrapper (type of account) or alter your portfolio over time to ensure that you are still going in the right direction and at the right speed.
There may be cancellations and/or over running engineering work, which delays you further or even results in your journey not starting when they should. For your investments it might be that life gets in the way. Although you know that you need to start, you don’t get around to it or you set off but get stuck half way and need a new plan.
Whether your train journey is the daily commute or for a trip away, the easiest way to keep your sanity is to stay on the train, read a book or watch a movie on your tablet, and try not to think about the things which you cannot control. Long-term investing is similar. Nearly all of us need to get on the train at some point because we need a return that is at least equal to general price inflation. Sticking to the plan (while ignoring all the short term problems or setbacks) gets us there in the end, with a lot less stress than worrying about what we cannot control.
Eventually just like the trains (well most of the time anyway!) you will reach your final destination. The secret is to have perseverance and not to panic when the journey inevitably gets delayed or doesn’t turn out exactly as you had hoped.
To have a successful investment experience we need to stick to the plan (stay on the journey), regularly rebalance (remember the leeway you included in the journey time and adjust your route accordingly) and ignore the short-term noise (stop worrying about delays or cancellations that might slow down your journeys but that you cannot influence anyway).
I actually think that long term investing can be less stressful than travelling by train!