Principles of successful long-term investment by J.P. Morgan
According to the investment analysts at J.P. Morgan financial services holding, the key to successful investment is not trying to predict the future, but rather analyzing the past and understanding the present.
The UK branch of the company named 7 principles of long-term investment for successful portfolio management. We share this inside information with you.
1. Plan a long life. Thanks to the advances in medicine and a healthier lifestyle, people in the world live longer. Statistics show that one in a 65-year-old married couple has a 50% chance of living another 25 years. Do you want to live these years solely on your retirement pension? If not, then consider investing.
2. Cash is no longer a panacea for poverty. A lot of people see cash as a safety cushion in unstable times and even as a source of income. But the era of ultra-low interest rates has reduced profitability of cash to almost zero, as a result, its vulnerability has increased. Besides, inflation destroys your purchasing power! Risk-averse savers who choose to hide their money under a bed mattress will eventually find that the real value of their savings has fallen.
3. Compound interest works wonders. Compound interest is called the "eighth wonder of the world": its power is so great that even a few "extra" years of savings can bring you a large amount in addition to your retirement pension. If you start saving at the age of 25, investing <5,000 a year each year with a 5% increase, you will get almost < 300,000 more by the age of 65 than if you start saving at just 35 and even depositing extra < 50,000.
If you reinvest the income from your investments all the time, it will contribute to further increase of your portfolio value. The difference between reinvesting and not reinvesting in the long run can be huge.
4. Profitability and risks go hand in hand. According to the company's reports, since the early 2000s, the most profitable assets on the market have been those with unstable prices. If you are interested in a high level of profitability, be prepared to wait out significant price fluctuations.
The opposite is also true: low-risk assets generate lower returns in the long run. If you do not want to take risks, do not have high expectations about the possible profit.
5. Volatility (price fluctuations) is normal. Keep your cool when everyone around you is losing it. Every year, the securities markets experience double-digit pullbacks and recessions. Investors should expect them and not get emotional when it seems that things are going badly. The lesson is that more often than not a stock market pullback is an opportunity, not a reason to sell.
6. Patience is a virtue. After the market drops, selling securities becomes a misguided strategy. But people often give in to the widespread panic and sell after the stocks have collapsed, missing out on the chance to make money on the subsequent recovery.
The best goes to the one who knows how to wait! Despite the fact that markets have bad days, weeks, months, and even bad years, history shows that investors are much less likely to suffer losses over long-term periods.
7. Diversify. The period since the beginning of 2008 can be called a real "rodeo" for investors due to its unstability: natural disasters, geopolitical conflicts and a major financial crisis have destabilized the global financial market. Nevertheless, the statistics of J.P. Morgan revealed that the worst performing assets over that period had been cash and commodities. At the same time, a well-diversified portfolio that includes stocks, bonds and some other asset classes brought in about 8% per annum over this time.