When considering whether to invest, do not try to time the markets – staying invested over the long term is the best strategy. Clients often ask us whether this is a good time to invest whilst others have strong opinions on whether markets are expensive or cheap. Usually these opinions are based on press articles or recent stock prices. “I am keeping the cash and will invest when the market drops” clients told us last year. Meanwhile our Balanced portfolio generated more than 10% in 2014 and again 10.51% since January this year.
Studies on historical returns show that the best option is to invest and stay invested over the long term as confirmed by a recent study conducted by JP Morgan and published by the US company Wealthfront. Although the study refers to an investment in US stocks only; something we would never recommend; it illustrates the point very clearly. If one invested $10,000 in the S&P 500 index of US stocks in Dec 1993 and stayed invested until Dec 2013 the investment would have then been worth $ 58,330. That is equivalent to 9.2% return per year on average. Remember that this period includes the dotcom crisis (2001), the Asian crisis (1998), the Russian default (1998), the financial crisis (2008) and the Eurocrisis (2010-2011). Now take an investor who tried to avoid these crises and attempted to increase his return above this rate of 9.2% per year. Let us assume that our investor sold his/her investments to stay in cash until a crisis arose. The trouble is that no investor can time this perfectly and the cost of missing days where stocks go up is very high. If an investor was invested in cash instead of stocks in just 10 of the best performing stock market days in 20 years, then his investment would have grown only to $29,000 instead of $58,330. The investor who missed the top 30 days over 20 years would barely make any return and would have only $11,000 by end Dec 2013.
The conclusion for the investor is that one should stay invested, going through ups and downs which over the long term generate attractive returns. The Mediterranean Bank portfolios are diversified and less volatile than the example above which looks only at US stocks. But the same principle applies: staying invested over 10 years in a balanced portfolio would have generated some strong returns of 9.88% per year on average.
At Mediterranean Bank we believe that a sound foundation for any financial plan is a savings account, which gives a low but steady return and provides you with access to liquidity whenever this is needed. Apart from our regular savings account, the Me3 account offers such an option. At 1.5% annual interest, funds can be accessed 3 months after you give notice of withdrawal. In order to maintain the purchasing power of your capital, we strongly believe that you should also invest a part of your capital in a diversified portfolio which will achieve higher returns over the long term. In the short term, there can be volatility up and down, and thus it is important that an investment can be left untouched for at least 5 years and ideally for at least 10 years.
Many savers are afraid to invest. However, there is a way to lower the volatility of your investment portfolio while still generating a return that is superior to traditional savings or fixed income assets and that is to follow a diversified asset allocation. Morningstar has constructed a range of five risk-graded asset allocations, designed for clients with a low tolerance for risk up to those with a more adventurous mind-set.
L-aħjar strateġija hi li tibqa’ bl-investiment tiegħek fit-tul. Toqgħodx tistenna sa ma s-suq ikun tajjeb.
Li tinvesti fit-tul hi l-aħjar strateġija. Toqgħodx tipprova taqta’ x’se jiġri fis-suq. Il-klijenti spiss jistaqsuna jekk huwiex iż-żmien opportun li jinvestu. Oħrajn huma tal-fehma li s-swieq huma għoljin jew irħas. Normalment, jaslu għal dan minn dak li jaqraw fil-gazzetti jew mill-aħħar prezzijiet fis-swieq tal-borża. Is-sena l-oħra kien hemm min qalilna: “Se nżomm il-flus u ninvestihom meta jaqa’ s-suq.” Sadattant, il-portfolju Bilanċjat tagħna ġġenera aktar minn 10% fl-2014 u minn Jannar li għadda reġa’ qed jiġġenera 10.51%.
L-istudji ta’ matul is-snin dwar ir-rendimenti juru li l-aħjar għażla hi li tinvesti u tibqa’ b’dak l-investiment għat-tul. Dan tikkonfermah il-kumpanija Amerikana Wealthfront bl-aħħar studju li ppubblikat, ta’ JP Morgan. Dan jagħmel referenza għal investiment li sar fis-swieq tal-istocks (jew ishma) Amerikani biss – ħaġa li qatt ma nirrakkomandawha – imma fih joħroġ ċar dan il-punt. Jekk xi ħadd investa $10,000 fl-indiċi 500 tal-S&P fis-swieq tal-Istati Uniti f’Diċembru 1993 u baqa’ b’dak l-investiment, sa Diċembru 2013 l-istess investiment sar jiswa $58,330. Dan ifisser medja ta’ 9.2% qligħ fis-sena matul dawk l-għaxar snin. Ma rridux ninsew li f’dan il-perjodu kien hemm il-kriżi dotcom (fl-2001), il-kriżi tal-Asja u l-kriżi finanzjarja Russa (fl-1998), il-kriżi finanzjarja tal-2008, u l-kriżi Ewropea (tul l-2010 u l-2011). Issa ejja nieħdu lil xi ħadd li pprova jevita dawn il-kriżijiet kollha billi jinvesti u jżid id-dħul tiegħu b’aktar minn dawn id-9.2% fis-sena. Li għamel hu li biegħ l-investimenti tiegħu biex ikollu l-flus għal meta jkun hemm kriżi finanzjarja oħra. Il-problema hi li l-ebda investitur jew investitriċi ma jista’ jkun jaf dan bl-eżatt u l-ispiża taż-żmien mitluf, meta l-istocks jogħlew, hi kbira ħafna. Jekk investitur investa fi flus, flok fi stocks, f’għaxra minn fost l-aqwa għoxrin jum tas-suq f’20 sena, l-investiment tiegħu laħħaq biss id-$29,000 flok $58,330. L-investitur li tilef l-aqwa 30 jum f’20 sena, ma għamel kważi l-ebda qligħ u llum għandu biss $11,000.
It-tagħlima minn dan kollu għall-investituri hi li għandhom iżommu l-investiment, minkejja t-tlajja’ u l-inżul tas-suq. Meta tqis kollox fit-tul, l-investiment jiġġenera dħul tajjeb. Il-model portfolios ta’ Mediterranean Bank huma diversifikati u aktar stabbli mill-eżempju li ġibna, li jħares biss lejn is-swieq tal-istocks jew ishma Amerikani. Imma l-istess prinċipju jgħodd: jekk tibqa’ bl-investiment għal numru ta’ snin f’portfolju bilanċjat tkun qed tiġġenera dħul b’saħħtu, b’medja ta’ 9.88% fis-sena.
Aħna ta’ Mediterranean Bank nemmnu li l-aktar bażi soda għal kwalunkwe pjan finanzjarju hi kont ta’ tfaddil, li jrendi ftit imma bi qligħ stabbli, u li joffri l-aċċess għal-likwidità meta tkun tixtieq. Minbarra l-kont ta’ tfaddil regolari, għandna wkoll il-kont Me3. Dan huwa kont b’imgħax annwali ta’ 1.5% fis-sena u tista’ tiġbed minnu sakemm tavża minn 3 xhur qabel. Barra minn hekk, pero, nemmnu ħafna li għandek tinvesti wkoll parti mill-kapital tiegħek f’portfolju ta’ investiment diversifikat, li aħna noffruh permezz tal-model portfolios. Fi żmien twil dan irendilek aktar. Fi żmien qasir, jista’ jkun li joqgħod tiela’ u nieżel, u għalhekk importanti li ma tmissux qabel mill-inqas tlieta jew ħames snin, idealment għaxra (10).
Ħafna jibżgħu jinvestu. Imma hemm mod kif tnaqqas is-sogru tal-investiment tiegħek, u fl-istess ħin jibqa’ jkollok aktar qligħ mill-kont tat-tfaddil tradizzjonali jew minn kont bankjaru b’termini fissi (jew il-fixed term deposit, kif inhu magħruf aħjar), billi jkollok u ssegwi allokazzjoni diversifikata ta’ assi. Morningstar joffru għażla ta’ ħames allokazzjonijiet (portfolji) ta’ assi, kull waħda b’livell ta’ riskju differenti, imfasslin apposta għal klijenti li jixtiequ jissograw mill-inqas u jibqa’ sejjer sa dawk li ma jiddejqux ikunu ftit aktar avventurużi bl-investimenti tagħhom.