If I want to invest for the long term are shares the best option?
When investing the biggest single challenge is to at least maintain the real purchasing power of your money. It is all well and good having £100 in 1980 and £101 today (so not loosing any capital at all in 32 years) but it is much more important that you can at least still buy the equivalent of what £100 would have bought you back in 1980. I do not know what the equivalent inflation adjusted amount would need to be today but you can be sure it will be a good deal more than £101.
Historically speaking only by investing in real assets (stocks and shares, property, commodities and the like) have investors typically been able to beat inflation (the main objective) and indeed show a real return on their hard earned. On this basis investing in shares is worthy of serious consideration.
Historically cash has been a poor hedge against inflation such that those who do not invest but instead hold everything on deposit have lost out over the medium to longer term compared to those who took some measured risks.
Of course there have been times when holding cash on deposit has yielded better returns than making investments (which will fall as well as rise in value). However it is hoped by taking due care in their selection and managment investors should eventually be rewarded. Unfortunately it has been the case that only by taking an elment of risk have investors more often than not had the opportunity to enjoy real, inflation beating, returns.
When considering any investment the watchword in financial services is to never put all your eggs in one basket. Individuals are thus strongly advised to always hold a cash reserve of 'rainy day' money before even contemplating making any invesmtent whatsoever.
Once adequete cash reserves are in place, if an individual then feels able to tolerate the risk of some losses in prospect of getting better returns (than the often paltry rates being offerred on deposits) then investment should most definitely be considered. Indeed i do not know of any investment which does not seek to be profitable at least most of the time! By choosing wisely (and modestly - avoiding the offers which appear too good to be true) most core investments actually have a good chance of working out over time. Asset selection and managment are of course the holy grail of money managment.
Again speaking historically, the longer a period you have available to invest the greater has been the probability that you should be profitable rather than loss making.
Going further if you can then so spread your money as to avoid ever having to need it all out in one go then this will reduce the biggest risk - that of seeing a big fall in your money just when you must acess it.
Also consider that even where you get the timing wrong it should not be catastrophic. You should still not need more than a year or twos income from your life's savings at any given point. The majority of your investments can therefore be left to hopefully recover in value. Aiming off to avoid such a stark choice is of course preferable.
Not being too greedy and reducing risk in the run up to needing your capital should help avoid the worst of any potential downturn.
Ultimately most long term investments are underpinned by having the majority held in real assets - like shares.
You can choose these yourself - if you have the skill and indeed deep enough pockets to afford a meaningful holding in any stock you decide to buy. Consider that a single 'meaningful' holding in one stock should actually be multiplied up at least ten times to achive a well diverisified overall selection of such shareholdings.
Alternatively you may very well be better allowing a good adviser to point you to a proven fund manager of appropriate collections of shares being managed on a professional basis.
Personally having been privileged to watch and guide clients accounts for over 20 years i would have no hesitation in investing for medium to longer term objectives (certainly ten years or more in duration) almost 100% of my investible capital - and doing so in real assets like share collections (collective funds).
I would expect to see times where i am looking at net losses - certainly in the first five years as world markets and sentiment moves around, but then gradually, as my money makes money and the extra earnings through dividends or rents or interest is added to my investment total and itself invested I would expect to see fewer and fewer times of loss. Eventually perhaps I may not return below where i started out and enjoy higher highs too. Reinvesting during the growth phase is a key ingredient to building capital.
Investing is not a pure science - indeed it can be more like an art with emotions fear and greed regularly throwing us off course. However stick with it, never box yourself into a corner such that you need all your money just as markets turn down and you should ultimatley beat inflation and enjoy real returns on your cash.
Whether shares, stocks (such as coprate bonds and gilts), property, commodities even fine art and classic cars are the things to invest it will very much depend on your experience, realtive wealth, timescale and attitude to risk. For me i would choose a 'collective fund' and let a professional do the actual stock selection and management for me. The professional can use his total fund to buy a well diversified and highly scrutinised basket of stocks for me and hundreds of others leaving me to concentrate on my day job. | 10.08.12 @ 16:41
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