Trying to future-proof your investments? Here’s what you need to know
Investment expert Robert Francis looks at how the pandemic has changed the way we think about the share market – and how you can shore up your investments now.
As the global pandemic continues to ravage economies around the world, it can be difficult for some Aussies to consider investing in certain companies and sectors that are still impacted by high levels of volatility.
One day economies are falling, the next they are rebounding – so it's no surprise that Aussies are re-thinking their investment strategies to find an option that provides some form of stability.
In fact, according to the ASX Australian Investor Study 2020, close to 1 in 10 Aussies changed their entire investment portfolio during the global pandemic.
So how can Aussies future-proof their portfolios? Is adopting a long-term investment strategy the solution?
The basics
A long-term investment strategy involves buying certain stocks and holding onto them for an extended period of time.
These investments suit companies that an investor deems to have sustained growth potential and that are likely to mature and flourish.
Unlike short-term investments – which are quickly bought and sold in order to attempt to make faster returns but that often come with higher risk and a lower potential return – a long-term investment strategy requires more patience, which is a trade-off for potentially lower risk and a higher possible return.
Some examples of popular long-term investment strategies include investing in growth stocks like Amazon, Netflix and Salesforce, stock funds, bond funds, dividend stocks such as Novo Nordisk and AstraZeneca, real estate or small cap stocks, and holding them as part of a diversified portfolio for a substantial period of time.
How long should I hold my investments?
There isn't really a set answer for this question. For some investors, a long time could mean three months, while for others, it could be between one and five years. Sometimes it can even be until retirement in order to build a nest egg or to support your family.
While it can be seen as a conservative investment strategy, those who opt to invest for the long term are often rewarded when a company reaches an impressive milestone. For example, one of the world's most successful investors Warren Buffet invested in some of his favourite brands including Coca-Cola and McDonalds in the 1990s, and has held onto them ever since.
Warren Buffet's trading style and strategy is based on one simple principle: he believes in patience and understanding the market in order to be rewarded with returns in the long term.
Buffet accepts that the world consists of a number of small opportunities that are worth the investment. He trusts that, on most occasions, popular stocks are probably overpriced, but very rarely, some stocks are also just given away. His investment strategy is based on identifying those rare opportunities and buying in big.
The pandemic effect
It's no secret that the coronavirus pandemic has changed stock market investing for the foreseeable future.
At the start of the pandemic, some investors decided to quickly cash in their investments in order to pay their rent and cover their basic life necessities, especially if they became unemployed as a result of stagnant workforces and closed businesses.
However, this meant that these investors had to start from scratch once they were ready to re-start their investment journeys.
Others took a step back in order to strategise and determine the best way to stake their money in industries such as healthcare, work-from-home and ecommerce, which they deemed "safe" and "thriving", despite the state of global economies.
These investors also carefully planned for the eventual easing of the crisis, with plans to reinvest in re-emerging industries such as airline stocks once travel restrictions are lifted.
Can a long-term investment strategy future-proof your portfolio?
Not only can long-term investment strategies protect investors from inflation, they can also help to grow investors' portfolios despite market fluctuations, recoup losses faster and, in some cases, accumulate returns from dividends.
Despite it often being tempting to sell off stocks that are feared to be lifeless (or moving "sideways"), it's important for investors to do their research, refrain from emotional investing and make logical decisions about a company's perceived value versus its actual value.
Who knows, you might even snag your own "unicorn" stock that booms in the next 5 to 10 years.
Robert Francis is the Australian managing director of global multi-asset investment platform eToro.
Disclaimer: The views and opinions expressed in this article (which may be subject to change without notice) are solely those of the author and do not necessarily reflect those of Finder and its employees. The information contained in this article is not intended to be and does not constitute financial advice, investment advice, trading advice or any other advice or recommendation of any sort. Neither the author nor Finder has taken into account your personal circumstances. You should seek professional advice before making any further decisions based on this information.
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