Investors often fall into the trap of jumping around when markets fluctuate or when there are new trends. Unless you are a professional or experienced investor, these decisions could go horribly wrong. Timing the market is challenging at the best of times, and even the skilled investor gets it wrong sometimes.
This does not mean you shouldn’t use the markets and play around with stocks. In fact, it is recommended that allocating about 10-15 percent of your portfolio to higher-risk investments or alternatives like crypto and venture capital, could be beneficial to your wealth building.
If you are looking at the total health of your portfolio, then slow and steady is the solution. Consistency is key. A long-term investment portfolio with a committed savings contribution is the backbone of building wealth. It takes the worry and stress out of timing volatile markets.
What is meant by Consistency in Investing?
Consistency is maintaining regular savings habits and building your capital over time. Regular contribution savings have the advantage of compound interest that grows the longer you invest.
‘If you go to the gym, you can’t just do one big workout; it’s not going to make a difference. You’re going to get sore, and that’s about all it’s going to achieve. You’re not fit for life with one big workout. Well, the same thing when it comes to investing.
You need to be consistent and ideally talk to a financial advisor or save regularly. Be consistent.’ – Nigel Green, CEO deVere Investments
Consistency is a commitment to do the same thing repeatedly year after year to steadily increase your portfolio’s value. This includes regular savings, having regular reviews with a financial advisor, and ensuring you are on track with your wealth-building goals.
Consistent Regular Savings – example.
A regular monthly savings of £100 over the course of 20 years with an average earning of 6% p.a. gives you £46 535.
“It’s consistency that makes the difference when investing through regular savings.”
Long-Term Investment – Smoothing out the Market
Consistency goes hand in hand with long-term investing. Over the long term, the performance of global markets fluctuates according to volatility and economic occurrences. This can be detrimental if you are investing short term as it is difficult to time the market. Time allows the investment to ride the ups and downs in the market and smoothes out volatility.
The consistency of the regular savings allows the investor to take advantage of unit cost averaging. Every month with a regular contribution, the investor purchases stocks or invests in a fund or funds. The price of the fund/stocks differs each month as markets perform. Some months you will benefit from lower prices as markets move. This means you get more shares/stocks for less, and when market prices increase again, they are worth more, and your portfolio grows.
Diversification and Active Investing
To mitigate risk and achieve maximum returns, it is essential to diversify your portfolio. Also, look for good quality diversified funds actively managed by fund managers.
“There remains one clear way for investors to maximise returns relative to risk: the time-honoured practice of portfolio diversification. A considered mix of asset classes, sectors, regions and currencies offers protection from market shocks. A good fund manager will help investors capitalise on the opportunities that volatility brings and sidestep potential risks as and when they are presented.”
Your investment advisor can help you find quality diversified funds that can build wealth over the long term through regular and consistent savings, and smooth out volatility and fluctuations in the global markets.
Please note, the above is for educational purposes only and does not constitute advice. You should always contact your investment advisor for a personal consultation.
* No liability can be accepted for any actions taken or refrained from being taken, as a result of reading the above.