Short-term investment outlooks prove futile
One and two-year investment horizons are effectively redundant, according to HLB Mann Judd Sydney.
Wealth management partner, Jonathan Philpot, said investors should focus on forecasting over the next decade as this would provide a more accurate reflection of market cycles and allowed for likely volatility.
He said: “It shouldn’t be a question of, ‘what’s going to happen over the next six to 12 months’, but rather ‘how long do I wish to invest for, and what do I want to achieve’?”
“No-one predicted after the initial COVID-19 outbreak in March 2020 that the share market would rise by 37% over the next 12 months, which illustrates the risk of a short-term focus.”
Philpot said if investors had a specific objective within a defined period of time, such as a house deposit, the share market would arguably not be the most appropriate investment strategy.
“Short-term investment horizons carry increased risk of negative returns, so investing in a secure, fixed-interest type of investment that will likely achieve a smaller comparative return is a better option,” Philpot said.
“For longer-term investors, including those who wish to leave a legacy to children and grandchildren, focusing on expected returns across different asset classes over ten years is a sound financial strategy.
“Importantly, however, for these longer-term investors, the share market shouldn’t be viewed as a ‘set and forget’ investment approach. Asset allocation should be reviewed every couple of years to ensure they are maximising the market value as it fluctuates between cheap and expensive.
“When considering 10-year forecast returns, investors are able to make gradual changes to their asset allocation - the share market will not become a sell overnight. This will mitigate any emotion-charged decision-making that occurs after a crisis.”
With listed companies currently announcing their financial results, Philpot said it could be tempting for longer-term investors to tweak portfolios, however caution was required.
“Some of these announcements can play into a short-termism mindset, but investors should stay true to their financial strategy.
“Just because a company’s profit has taken a hit or has come under public scrutiny, it doesn’t mean that will continue in the years ahead. It’s too easy for short term investors to buy into headlines.”
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