The hot summer months are a time to wind down. This probably means that you will be less likely to pay close attention to the capital markets or actively invest. While slowing down is probably a good thing for your general wellbeing, it could also be just the investment strategy your portfolio needs.
The truth is that most investors trade far too often, reacting emotionally to the latest breaking news and chasing short term trends. There’s a reason the phrase ‘time in the market beats timing the market’ and that’s because patience always beats frequent trading when it comes to building long-term wealth. Study after study has shown that lower trading activity results in higher investment returns. So, this summer, remember that going on holiday probably means a better performing portfolio.
In fact, when it comes to investing, you might want to adopt a ‘summer all year round’ approach. Not only is active trading a losing proposition for most investors, but a more detached approach to investing will also avoid the stress that comes with pursuing other short-term strategies. If the underlying reasons for your investment choices are sound, your money will continue to work for you regardless of whether you are at the office or on holiday.
Being less active in your investing throughout the year can also help you overcome the traditional underperformance of stock markets during the summer months. With many people on holiday, trading volumes decline and this increases the risk of volatility. Reacting to this volatility during the summer months can have a negative impact on your portfolio but this can be exacerbated if you react in the same way to volatility at other times of the year.
That said, it’s probably not the best idea to just forget about your portfolio and head to the beach. Remember to keep up to date with the latest economic and political news especially as in recent years, the summer months have seen markets perform much more strongly than expected. You might also want to speak to your financial advisor before going on holiday to review your portfolio, rebalance it if necessary and plan any actions you may wish to take over the coming weeks.
Managing your investment portfolio effectively during the summer months can be a balancing act between staying informed and enjoying your well-deserved holiday. Taking a nuanced approach will allow you to relax and enjoy your holidays with the confidence that your investments are under control. Remember, staying informed and prepared is key to navigating the summer market while savouring your time off.
The information contained in this article is for general information purposes only and is not intended to provide legal or other professional advice nor does it commit MeDirect Bank (Malta) plc to any obligation whatsoever. The information contained in this article is not intended to be a suggestion, recommendation, or solicitation to buy, hold or sell any securities and is not guaranteed as to accuracy or completeness. Investors must make their own informed decisions and seek their own advice regarding the appropriateness of implementing strategies discussed herein. If you invest in any product, you may lose some or all of the money you invest. The value of your investment may go down as well as up. Any income you get form any investment may go down as well as up. MeDirect Bank (Malta) plc, company registration number C34125, is licensed by the Malta Financial Services Authority to undertake the business of banking in terms of the Banking Act (Cap. 371) and investment services under the Investment Services Act (Cap. 370).