INFLATION SERIES

In it for the long haul: why invest for the long-term  

  • Bella Edmunds
  • 21 September 2022
  • 5 mins

Thinking about what you want to achieve in 15 or 20 years’ time doesn’t come naturally for most of us. More so now than ever, the current challenging backdrop of sky-rocketing energy prices and the cost of living crisis means many of us are worrying about affording our bills over the next few months rather than how healthy our finances could be in a decade’s time. But concentrating on the short term could be putting your longer-term goals in jeopardy.

Planning your finances to help beat inflation 

If you haven’t started thinking about your financial plan yet and your savings are sitting in your bank account, then you could already be losing out. The current rate of price rises – inflation – is much higher than any interest paid on current or easy-access savings accounts. This means the real value of your cash is eroding. Putting a financial plan in place now, even if you haven’t started to think about what your long-term goals might be, means that you can begin to potentially protect and build your savings now for when you need to use them in the future.  

Disciplined not defeatist 

For those who have started to plan their financial future, it is important to keep focusing on the longer term, and not to get distracted by short-term ‘bad news’.  

Financial markets are difficult to predict and can change direction very quickly. If you react to a downturn in markets and sell out of them, it is possible that before you’ve even considered buying back in, markets could have bounced back so quickly that you end up missing out on the best returns.  

It can potentially pay to be disciplined in your investment approach and avoid reacting to short-term market movements. 

It will of course always depend on your individual circumstances.  

Short-term bumps but an overall upward trend 

Looking back at performance helps us to understand the nature of markets. Of course–past performance is not indicative of future performance – you can’t predict future market returns but you can see patterns of behaviour. Financial markets react to external economic and political factors, and so bumps in performance are to be expected. But over the longer term, markets tend to rise, although this is not guaranteed.  

Riding the emotional rollercoaster 

Even when you’re aware that ups and downs in markets are to be expected in the short term, you need to go one step further and be aware of how you react to those bumps. The emotional rollercoaster tends not to be equal; the feeling of panic when markets fall is typically much more pronounced than the feeling of optimism when markets are rising. This means it takes much more discipline to stay on the rollercoaster when markets are down, but that is exactly the time when you need to resist the urge to sell at low prices, as it will reduce the value of your investment.  

Telling someone not to panic when the value of their hard-earned savings is going down is easy for an outsider to say!  

But that’s exactly why it could pay to have an outside opinion when it comes to something as important as your savings. Regular check-ins with your adviser gives you the opportunity to talk through any concerns, and to hear an expert view from someone who can detach the emotion from the situation.

Matching your investments to your goals 

Regular adviser check-ins also provide time to revisit whether your financial plan still matches your goals. If your aims are longer term - helping children through university or having a more comfortable retirement - then your investment strategy should be long term too.  

But being disciplined doesn’t mean blindly sticking to your initial investment plan. Things change over time, a decision not to go to university may mean helping with a wedding ten years later. And changes may be beyond your control; do you need to retire early due to ill health?  

Any changes in circumstances could mean your investments need to change too. So, as well as having a long-term plan, you should regularly revisit this plan to see if it is on track and if it needs adjusting to meet any change in goals.  

Important information 

The value of investments and the income from them can fall as well as rise and are not guaranteed. The investor might not get back their initial investment.  

Any views expressed are our in-house views as at the time of publishing. 

This content may not be used, copied, quoted, circulated or otherwise disclosed (in whole or part) without our prior written consent. 

Fees and charges apply at Schroders Personal Wealth. 

Forecasts are not a reliable factor of future performance, and neither is past performance a guide to future returns. 

There is no guarantee by investing money it will keep level or beat inflation, particularly when inflation is high.

All information correct at the time of publishing.

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