As an investor one is always learning. Our perception of investing is guided by our experiences: those old enough to have been investing in the 1970s will retain uncomfortable memories of rampant inflation and the impact that had on cash, bonds, and the general travails of life when prices spiral upwards. Others who lived through the birth of the internet and the boom and subsequent bust of the ‘dot.com’ era of the late 1990s and early 2000s, may also be living through a sense of déjà vu. For most investors, interest rates have been on a steady long-term decline making mortgages cheaper and supporting bond and equity prices. In the past twelve months, we have been reminded of some useful lessons that can – hopefully – make us all better investors
Several key lessons stand out for us:
These lessons lead us to some obvious conclusions about portfolios. Own a sensible balance between bonds and equities and understand that owning high-quality bonds is an expensive, but necessary insurance policy for most and allows you to meet your nearer-term liabilities. Own a globally diversified equity portfolio. A few US technology stocks cannot continue to out-run markets for ever. Keep the faith in your long-term portfolio strategy and turn your eyes away from market temptations! At the end of the day, building wealth from investing is a long, boring process interspersed with years like the one we have just had. We survived what the markets threw at us and will survive whatever comes our way again. Stick with it.
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