Investing for the long term requires nerves of steel. Of course, it is ultimately rewarding, but there is plenty of trip-wire lying in wait along the way to tempt investors to call a halt to proceedings and head for the safety of cash.
By way of example, in recent days, we have watched from across the Atlantic as yet another bank – this time, First Republic – has had to be rescued in the United States.
And yet again, fears have been stoked that contagion could be around the corner and that we are heading for another banking crisis to match that of 2008.
Certainly, the S&P 500 Index got a fit of the nerves early on Tuesday in the wake of the acquisition of First Republic by financial behemoth JPMorgan Chase.
Maybe we are heading for another banking crisis – maybe, we are not, but it is all very unsettling.
Recession in the United States? Probably. World recession? Probably. Hardly a conducive backdrop to persuade investors to take an equity stake in companies that ultimately reward shareholders with a slice of the profits they generate from their sales revenues.
Recessions – as we all know - are not particularly good for sales.
Yet, as many financial planners are keen to point out to me whenever I bump into them (at conferences, sporting occasions and dinners), investing is all about the long term.
Do not get caught up in all the noise, they say.
Provided your investment portfolio is broadly diversified – and you are using all the tax breaks available – it should ride out whatever comes its way. ‘Tell your readers that,’ they say. ‘Stop freaking them out.’
It is a line of financial thought I tend to agree with.
Personally, I keep dripping money into my pension through thick and thin – and add to my Isa whenever I am feeling flush.
Indeed, I deliberately refrain from constantly looking at how my long-term investments are progressing.
It is a strategy that so far has served me well – on the rare occasion I take a look, it seems my investments have survived the short-term blips and that no action was better than evasive action.
These are messages I send out to readers on a regular basis.
Against this difficult backdrop (thick and thin), it is a shame that the government has done little to suggest that it wants to encourage us to keep taking control of our own financial destiny.
All rather disappointing I would say.
Yes, the removal of the pension lifetime allowance was a smart move by chancellor of the exchequer Jeremy Hunt in his March Budget. But this allowance should never have existed in the first place – it was pensions-meddling at its worst.
Capping the annual contributions someone can make into a pension makes sense on cost grounds (that is, the cost of providing tax relief), but it is unfair of government to then penalise successful pension management by applying a tax charge on fund values above an arbitrary figure.
