Revealed: A long-term investment strategy could be key to beating inflation

Published: May 9, 2023 by Jennifer Armstrong

Over the last year, you may have been affected by soaring inflation, rising interest rates, and volatile market conditions. The good news is that research shows a long-term investment strategy could help you grow your wealth despite a challenging environment. 

Inflation has been high over the last 12 months, and it could have eroded the value of some of your assets. Take money held in a cash account, for example. Due to inflation, it’s now likely you can buy less with it than you could just a year ago. While interest rates have increased, they haven’t kept up with inflation. So, the value of your savings in real terms is likely to have fallen. 

While investment markets have experienced ups and downs, research suggests that a long-term investment strategy could be key to growing your wealth and beating inflation.

£10,000 invested in 1985 could have beat inflation by around £170,000

Research from Standard Life demonstrates how investing could help you grow your wealth over the long term.

If you invested £10,000 in the FTSE All-Share Index on 31 December 1985 and left it there until 31 May 2022, your investment would have grown to around £200,000 (growth does not factor in any charges). 

Even when you consider how inflation has affected your spending power, that’s a significant return on your investment. The research estimates the real value of £10,000 in 1985 would be around £27,000 today. So, investors would have beaten inflation and improved their long-term financial security by investing for almost four decades. 

Of course, between 1985 and today, there have been periods of volatility. And at times, the value of the investments would have fallen. 

For example, long-term investors may have been nervous during 1987’s Black Monday, the dot-com crash, the 2008 financial crisis, or the Covid-19 pandemic, to name just a few market events. Yet, those that had confidence in their long-term investment strategy could have benefited over the long term.

While there have been declines, including some steep ones that may have tested the resolve of investors, overall, the trend is an upwards one. 

Returns cannot be guaranteed, and past performance is not a reliable indicator of future performance. However, the research shows why a long-term outlook is important when you’re investing.

If you’re worried about your portfolio’s performance after a difficult 12 months, reviewing the performance over years or decades, rather than months, could put your mind at ease. 

4 important investment rules to follow

1. Invest for the long term

The peaks and troughs of the investment market mean a long-term view is essential.

You should invest with a minimum time frame of five years. This means you have more time for markets to recover if you experience a dip. While returns cannot be guaranteed, historically, markets have delivered returns over the long term. 

2. Don’t make knee-jerk decisions in response to short-term market movements

If you see the value of your investments falling or read about volatility in the news, it can lead to investment decisions you haven’t fully thought through. However, withdrawing money during a volatile period turns paper losses into actual losses, and means you could miss out on a potential recovery. 

Investment decisions should be carefully considered and reflect your goals. While it can be difficult, try to tune out the short-term market movements and focus on the bigger picture. 

3. Create a balanced portfolio

Diversification in your portfolio could reduce how much volatility you experience. By investing in a wide range of assets and companies, losses in one area could be offset by gains or stability in another. So, building a balanced portfolio that reflects your goals is crucial. 

4. Ensure your portfolio reflects your risk profile

All investments carry some risk, but the level of risk varies. It’s essential you understand what level of risk is appropriate for you and how to incorporate this into investment decisions.

Your risk profile should consider a range of factors, from how long you’ll invest to other assets you hold. Please contact us if you have any questions about investment risk.

Get in touch to discuss how you could beat inflation 

Long-term investing could form part of your financial plan to grow your wealth and reach your goals in the future. Please get in touch to arrange a meeting with one of our team to create a bespoke plan that’s tailored to your circumstances and aspirations. 

Please note:

This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.


Share: