Why you should lock investments away for 10 years
Moneywise has long warned savers to ride out market volatility by investing for the longer term, and new research by AXA Self Investor proves why it can be so important.
The investment platform assessed the 10-year performance of the FTSE 100 – an index of the 100 largest companies on the London Stock Exchange - on a rolling monthly basis since February 1996.
During this period, it found that the index generated a positive return 95% of the time, producing an average total return of 69.57% over the 10 years, with the largest return at 154%.
Of course investing doesn’t come without risk, and unlike cash savings, your initial outlay can decrease as well as increase – there are also fees to consider.
See our Beginner's guide to investing for the basics.
But AXA says there were only six out of 120 occasions where investors would have lost money over a 10-year period, with the biggest loss at 14.5%.
‘Investing for the long term is the wisest course of action’
Adrian Lowcock, head of investing at AXA Self Investor, says: ““Only if you had bought during the dot com bubble and subsequently sold at the lowest point of the financial crisis 10 years later you would have lost money. This fact highlights the importance of staying calm and not selling after markets have fallen.
“The statistics demonstrate that time in the market is more important than timing the market.
“Investing for the long term is the wisest course of action and as we have seen this week markets can swing back just as quickly as they fall.”
Three tips for successful long term investing
AXA’s three top tips for investors are to:
- Stay calm. Only make investment decisions when you are calm and rational. Mistakes are often made in the heat of the moment and when our attitude and tolerance for risk is low.
- Remember your goals. Remind yourself what you are investing for, whether it is retirement or a dream holiday.
- Buy when others are selling: When everyone is selling, think about filling your annual individual savings account (Isa) or self-invested personal pension (Sipp) allowance when prices should be cheaper.
Read our guide on how to Invest for success in 2016.
Like a self-select ISA but for pensions, self-invested personal pension is a registered pension plan that gives you a flexible and tax-efficient method of preparing for your retirement. It gives you all sorts of options on how you put money in, how you invest it and how it’s paid out and offers a greater number of investment opportunities than if the fund was managed by a pension company. SIPPs are very flexible and allow investments such as quoted and unquoted shares, investment funds, cash deposits, commercial property and intangible property (i.e. copyrights, royalties, patents or carbon offsets). Not permitted are loans to members or people or companies connected to the SIPP holder, tangible moveable property (with the exception of tradable gold) and residential property.
Invidivual Savings Accounts were introduced on 6 April 1999 to replace personal equity plans (PEPs) and tax-exempt special savings accounts (TESSAs) with one plan that covered both stockmarket and savings products, the returns from which are tax-exempt. The ISA is not in itself an investment product. Rather, it’s a tax-free “wrapper” in which you place investments and savings up to a specified annual allowance where the returns (capital growth, dividends, interest) are tax-exempt (you don’t have to declare ISAs and their contents on your tax return). However, any dividends are taxed within the investment, and that can’t be reclaimed.
A market-weighted index of the 100 biggest companies by market capitalisation listed on the London Stock Exchange. It is often referred to as “The Footsie”. The index began on 3 January 1984 with a base level of 1000; the highest value reached to date is 6950.6, on 30 December 1999. The index is “weighted” by how the movements of each of the 100 constituents affect the index, so larger companies make more of a difference to the index than smaller ones. To ensure it is a true and accurate representation of the most highly capitalised companies in the UK, just like football’s Premier League, every three months the FTSE 100 “relegates” the bottom three companies in the 100 whose market capitalisation has fallen and “promotes” to the index the three companies whose market capitalisation has grown sufficiently to warrant inclusion. Around 80% of the companies listed on the London Stock Exchange are included in the FTSE 100.