10 investment strategies proven to increase potential long-term returns

Looking to increase your chances of greater investment returns over the long term? These 10 proven investment strategies could help.
10 investment strategies proven to increase potential long-term returns
Reading time: 7 mins

Making investing a habit is easier than you may think. All you need is a set of investment strategies that you can stick to. If you are an experienced investor, or someone approaching investing for the first time, these strategies will either be a useful reminder or feel like the ten commandments to investing.

 

Consider investing now
Even the most experienced investors on the planet find it difficult (almost impossible) to guess the best time to invest – spoiler alert: there’s no right time to enter the investment world. Instead of waiting for the perfect moment, start investing when you can. Taking the plunge can feel like a big job and many people are finding it hard to understand how financial markets work. Luckily, investment services, like Wealthify, are working hard to make investing easy. Not only will we build you an investment Plan, we will also manage it on an ongoing basis. If you’re waiting to build up an amount you feel is appropriate to start investing, you could be missing out on potential investment returns. Wealthify, and similar investment services, make investing available to everyone as you can start with as little as you want. We explain how we build a £1 Stocks and Shares ISA here.

 

Pick an investment approach that you feel comfortable with
To make the most of your investment journey, it could be a good idea to invest for the long haul and pick an investment approach that suits your needs. If you don’t mind seeing the value of your plan fluctuate, then you could choose to put your entire pot in higher-risk investments, like shares. On the other hand, if you aren’t comfortable with the frequent ups and downs that come with shares, perhaps you could look at other investment types, like bonds, or an investment Plan that contains a combination of the two? At Wealthify we have five options available to cater for investors with different appetites. Find out more on how we invest.

 

Think about diversification
We talk about diversification a lot, but for good reason, it’s important! Diversification is the investment strategy of not putting all your eggs in one basket. It can mean holding a mix of investment types, shares, bonds, and property. But diversification can also mean ensuring you’re investing in a mix of regions. Take our Wealthify investment Plans for example, we invest in the United Kingdom, Europe, America, Japan, and Emerging Markets. By investing in different places, your investment would be sheltered should there be anything harmful occurring in one geographic area, the other places we invest in will hopefully buoy your returns.

We've got a blog where we explain how to build a diversified portfolio without an investment manager.

 

Think about investment funds
Funds are essentially a large basket of individual shares or bonds. It is a cheaper, more effective route for investors to gain access to different types of investments worldwide. For example, an investor wanting access to UK shares may select one fund that invests in UK shares instead of buying lots of individual shares of UK companies. The cost to buy the individual stocks compared to a fund can be significantly different. Buying an individual share of each of the top 100 companies in the UK could easily cost £5 per transaction1. So, buying 100 shares would end up costing a total of £500. Meanwhile, you could buy one fund with similar holdings for just £5 – bargain!1. We have a fund only approach when building your investment Plans because it allows us to invest in thousands of investments from each corner of the globe.

 

Keep costs low
From taking the plunge into investing to building a diversified investment plan of funds, next up is a useful investment strategy for long term investors is to keep costs low. Simply put, the less money you pass to the investment services and funds, the more of the returns you get to keep and add to your pot. Some investment services, advisors, and fund costs all totalled up together can be in excess of 2.5% annually2. Modern investment solutions, like Wealthify, typically provide a full investment solution that includes building and managing your Plan, ongoing fund selection, and rebalancing your Plan for less than 1% in total. Calculate what your investment fees would be with Wealthify.

 

Contribute regular deposits into your investment Plan
Investing into a personal pension or a Stocks and Shares ISA when possible should be a repetitive exercise.  Contributing a small amount often can go a long way. For example, depositing £50 into your investment Plan once a month, an amount that is probably less than your phone bill or gym membership, may not seem like a lot, but after 10 years that is £6,000 extra you’ve contributed to your Stocks & Shares ISA or pension without too much sacrifice. With positive investment returns that amount may be even larger. To see the effects of adding regular to your deposits try out our investment calculator here.

 

Rebalance your investment Plan
If you’re investing in a do-it-for-you investment service, like Wealthify, you don’t have to worry about rebalancing your investment Plan, as our investment team will rebalance for you. However, if you’re managing your own investments, rebalancing on at least an annual basis is usually recommended. What is a rebalance? We talk about rebalance when we make adjustments to your plan so you keep the right mix of investments in your portfolio. This is important from a risk perspective. For example, imagine you had a simple 50/50 split between shares and bonds, but over time, this split drifted to 70/30 due to superior performance of the shares in your investment Plan. Yes, it might be due to strong performance, which is great, however, instead of looking like a confident investor you now have an investment Plan that has a higher risk level given the increased percentage of shares. In this circumstance when our investment experts see a significant level of movement in your investment Plan, they will rebalance your account back to the desired weights in the different investment types. In this example as you hold too much in shares and not enough in bonds, our investment team would sell some shares, taking potential profit and bringing down the percentage, and with the proceeds buy more bonds so that the weights are back to 50/50. You sell what is doing well and buy more of what is not doing so well.

 

Be prepared to ride the ups and downs
Investing is a habit that requires some patience and you’ll need to be prepared to ride out the ups and downs. Building an investment Plan that owns shares can be fruitful for long-term investors however markets rarely go up in a straight line. The S&P 500 for example since inception has averaged around 9% annually3. However, within that period there have been multiple stock market crashes as a reflection on the economy at the time. As an investor looking for long-term returns, it’s important to be prepared to experience declines. History suggest declines are sharp and typically short as most global stock markets deliver positive returns long-term, but declines do happen so it can be very beneficial to be prepared.

 

Try and block out any white noise
When stock markets are reacting negatively to information interpreted as harmful, it’s very tempting to react. But what if we told you that listening to the noise could harm your investments? As a long-term investor, blocking out white noise is essential. It’s very easy to get lost in the moment, reading headlines about stock markets plunging and crashing, which ultimately leads you to hit the withdraw button probably at the worst time possible. As mentioned earlier, declines are typically sharp and short with the best returns seen shortly after a decline. Instead of selling at the bottom and buying after the best gains, a better solution might be to try and ignore the sensational headlines and riding out the volatility. If you have a long-term investment strategy, there is no reason to worry about a short-term decline. However, when it feels like the world is falling apart, it is easier said than done!

 

Think about the product your investments are going to sit in
There are a number of different products available to investors. Two products that are typically favoured for UK investors with a long-term strategy are ISAs and personal pensions. Both come with their own set of rules and benefits. ISAs are easier to access if you need money in a hurry, and any investments gains made within a Stocks and Shares ISA are tax free. In comparison, pensions are typically locked away until 55 – but they do come with the benefit of the government topping up your investment with a 20% tax relief. Find out more about our ISAs and personal pensions.

Other products that may be worth exploring if you’re investing for the future are ethical investment plans that focus on companies that operate with a conscious effort to mitigate the impact they’re having on the environment, and are ambassadors for a more sustainable way of doing business. Visit our ethical page to read up more on ethical investing.

 

To wrap up
If you practise our ten investment strategies that are proven to help generate long-term returns, your future self will likely be thanking you in years to come. Investing is a habit that requires practice, and it won’t always go to plan. However, remember to think long-term and be prepared to ride out the ups and downs. And, if you would rather leave the building and managing of your investment Plan to the experts, companies like Wealthify can do it for you!

 

References:

1: https://www.fool.co.uk/mywallethero/best-share-dealing/buy-shares/

2: https://www.ft.com/content/ba0ae18c-6a98-11e6-a0b1-d87a9fea034f

3: Data from Bloomberg

 

The tax treatment depends on your individual circumstances and may be subject to change in the future.

Past performance is not a reliable indicator of future results.

Please remember the value of your investments can go down as well as up, and you could get back less than invested.

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