When we invest, it is with the goal of making a return greater than we would get if we just left the money sitting on deposit. There are loads of different factors that determine how much (or less) we get back; the assets we invest in, the level of investment risk we take, how long we invest for, the price we bought for, market conditions during the investment period to name a few. We have absolutely no control over most of the factors that can affect the performance of a fund. B
Let’s consider the case of two clients, Paul and Clare. Both invest €100,000 for 10 years in March 2006. Paul has an interest in his investment and checks it o
Paul takes an interest in the markets and keeps an eye on his investment. Over his investment journey, he sees his investment fall, then recover, then lose almost half its value during the credit crunch recession when it falls to €52,745. It grows back to €95,373, still less than he invested but he’s after making €42,678. The Greek crises sees his money fall again before going on a tremendous run and growing to €192,376 in April 2015. What a return! Then there was the slowing of growth in the Chinese market and markets fell again. He cashed in at the end of his 10 year term and got back €167,745. While he was happy with his return, there is regret. He repeatedly tells people that he should have sold out at €192,376 and he lost €24,632.
Clare had €100,000 to invest that she was willing to put away for 10 years. She didn’t really check the value over that period. At the end, she got back €167,745 (excluding taxes). That’s an extra €67,745 from her investment amount of €100,000. She’s delighted with her return and has no regrets at all.
The difference between their experience in the investment journey is that Paul perception of success kept on changing over the investment term. When his investment grew back to €95,373 after almost halving in value, he was happy even though his investment was still at a loss. That is because he was now looking at his investment as €52,745. Likewise, when it got to €192,376, that was his investment now and any loss would leave an element of what could have been.
Clare in the meantime always viewed her investment as €100,000, the actual amount of money she invested. Any return over deposit rates over that 10 year period would have been a success.
When it comes to investing, we look at what could have been too much. We cannot time the market. Sometimes we will be lucky, sometimes not so lucky. What always have to focus on is have we made more money than we put in? That is the true indicator of whether we have reached our investment goals or not.
If you have any questions, drop me an email at firstname.lastname@example.org